If you are a real estate investor in Houston, you may have heard of hard money loans as a way to secure quick financing for your projects. However, before diving into this type of lending, it is important to understand the laws and regulations surrounding hard money loans in Houston. From licensing requirements to disclosure rules and usury laws, there are many legal considerations that investors need to be aware of in order to operate within the bounds of the law. In this article, we will provide an overview of the laws and regulations for hard money loans in Houston and offer tips for finding reputable lenders who can help you achieve your investment goals.
Licensing Requirements for Hard Money Lenders in Texas
When it comes to lending money, there are many laws and regulations in place to protect both borrowers and lenders. In Texas, traditional lenders are subject to licensing requirements in order to operate legally.
To become a licensed lender in Texas, an individual or company must first obtain a Residential Mortgage Loan Originator (RMLO) license. This license is regulated by the Texas Department of Savings and Mortgage Lending (TDSML).
When it comes to hard money lenders, there’s not a specific license that’s required. However, it is important for borrowers to work with hard money lenders that have been in the business for a good while, are rated by the Better Business Bureau and can provide you with a list of satisfied clients.
Disclosure Requirements for Hard Money Lenders
All types of lenders including hard money lenders in Texas are also subject to disclosure requirements. These requirements are designed to ensure that borrowers have access to all necessary information about a loan before they agree to its terms.
Under the Truth in Lending Act (TILA), all lenders must provide borrowers with a disclosure statement that outlines the loan’s terms and costs. This statement must include the annual percentage rate (APR), which represents the total cost of the loan expressed as a percentage of the loan amount. Most borrowers should push for the closing to be at a title company. This will prevent any misunderstandings and unethical behavior by unscrupulous lenders.
The disclosure statement must also include information about any fees associated with the loan, such as origination fees or prepayment penalties. It must also include information about the borrower’s right to cancel the loan within a certain timeframe, known as the rescission period.
These disclosure requirements are important because they allow borrowers to make informed decisions about whether or not to accept a loan. By providing borrowers with clear and transparent information about a loan’s terms and costs, hard money lenders can help ensure that borrowers understand the risks and benefits of taking out a loan.
Usury Laws in Texas
Usury laws are regulations that set limits on the amount of interest that can be charged on loans. In Texas, usury laws apply to all types of loans, including hard money loans.
Hard money loans are considered as commercial loans and thus have a different cap from personal loans. Under Texas Law, the limitation is up to 18% a year.
To avoid running afoul of usury laws, hard money lenders in Texas may choose to structure their loans in a way that complies with the legal requirements. For example, they may charge lower interest rates and higher fees in order to stay within the 18% limit.
Conclusion
In conclusion, the laws and regulations surrounding lenders in Texas are designed to protect both borrowers and lenders. By understanding the licensing and disclosure requirements, as well as the usury laws, investors can make informed decisions about their lending partners and protect themselves from legal trouble. It is crucial for borrowers to work with licensed traditional lenders and with hard money lenders that stride to comply with all applicable laws and regulations.
GL&L Holdings stands out for their reputation for professionalism and ethical behavior. By partnering with reputable lenders like GL&L Holdings, investors can access quick financing for their real estate projects while operating within the bounds of the law.
