Who are these private lenders for home loans? Where can you find the money you need to purchase and refurbish a depressed property in the Houston area? Maybe you own a property already and need money for repairs. Private lenders for home loans are often referred to as hard money lenders or non-traditional lenders.
This is not because it is hard to get money from them to renovate a house, the opposite is usually the case. Hard money lenders make loans based on the after-repair value (ARV) of a property. An independent appraiser evaluates the property and the remodeling plan to arrive at the ARV. This is where the win-win comes in for home loans.
The Premise of Private Lenders for Home Loans
Traditional moneylenders require high credit scores and near-perfect income to credit ratios. Usually, 20 percent down, mounds of paperwork and 4 to 6 weeks lead time to get approval. On the other hand, private lenders for home loans do not consider creditworthiness, do not require a down payment, nor is there a long wait for the approval. They often instead consider historical repayment and reputation. Contractors and real estate speculators normally do not have a steady income, like banks and credit unions want to see, but make their money at resale.
When you spot a property in the Houston area you want to invest in, remodel and resell, you cannot wait around for a banking institution to decide if they’re going to back your investment. If you do, someone else will come in with the cash and snap it up.
They understand contractors or real estate speculators have many irons in the fire at the same time, many houses getting upgraded for resale. What they’re looking for is driven investors who complete renovation projects and make them money. So, it’s a mutual win for both parties when you get a great deal on a property, restore and resell that home. While at the same time, it’s also good for the community.
Private lenders for home loans are looking for the same thing you are: a positive return on their investment. They want the property as collateral but not to do the repairs. That way, both parties are protected from risk and ensured of making a profit.
Understanding the Risks
All moneylenders, and even real estate speculators, understand there are risks with buying, remodeling and selling a property. Likewise, there are many variables when it comes to renovating a property, such as:
- Unknown or unexpected repairs
- Property values
- Maintaining and selling the renovated property
- Uninsured catastrophes during or after the remodel
Often, while upgrading a property, the contractor or developer might discover problems that are costlier than anticipated. Some of the common glitches with older properties are two or more layers of roofing and leaks, galvanized plumbing that needs to get replaced, HVAC replacement, termites, asbestos and lead paint. Any of these could lead to a much smaller profit.
Property values could suddenly drop due to flooding or a natural disaster in the area. That could mean the house sits on the market longer than was foreseen.
Not all these risks can be predicted. Both the lender and the borrower must understand what an acceptable liability is and which risks are worth taking, given the potential profit. Private money lenders are usually more agreeable to some uncertainty than traditional lenders.
Red Door Funding, Private Lenders for Home Loans
In the Houston area, Red Door Funding, (832) 539-1099, matches investors with borrowers. We assist private lenders for home loans in finding speculators who need money to renovate and resell properties. Send your questions on email, email@example.com.