Hard Money Lending in Texas
Texas has robust non-judicial foreclosure laws, making it highly attractive for hard money lenders. This regulatory environment frequently allows for slightly more competitive origination points and higher LTV ratios compared to heavily regulated coastal markets.
What is a Hard Money Loan?
A hard money loan is a short-term, asset-based loan primarily used by real estate investors to purchase and renovate properties. These loans are issued by private lenders or investor groups rather than traditional banks, meaning they can be funded much faster—often in a matter of days.
Understanding the Costs
Because they carry higher risk for the lender, hard money loans come with higher costs than conventional mortgages:
- Origination Points: An upfront fee paid to the lender at closing. One point equals 1% of the total loan amount. In Texas, average origination fees are around 2.5 points.
- Interest Rate: Usually ranges from 10% to 15% annually. Payments are typically interest-only, meaning you aren't paying down the principal balance each month.
- Holding Period: The length of time you hold the loan before selling the property or refinancing. The longer the holding period, the more interest you pay, directly reducing your profit margin.
When to Use Hard Money
Hard money is ideal for distressed properties that wouldn't qualify for conventional financing. If you're undertaking a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy or a standard fix-and-flip in Texas, hard money provides the speed and leverage necessary to compete for off-market deals.