Understanding Your Best Short Term Loan Options for Your Real Estate Deal

loan agreement paper and pen

Whether you are new to real estate investing or have been in the game for years, you may need a short term loan now or in the future. Short term financing can help move your project forward in several real estate situations. Learn how to navigate those situations and take your real estate investing to the next level.

What is a Short Term Loan?

A short term loan or line of credit can be a valuable resource when you quickly need an influx of cash before long-term funding begins. These loans often come from private lenders because banks perceive them as too risky, or can’t close as quickly as private lenders. You will have quicker turnaround time and faster access to cash with a private lender, but you will see higher interest rates than with a bank.

Bridge Loans

How does a bridge loan work?

A bridge loan is designed to ease monetary needs when you are waiting for long-term funding. Bridge loans give you the money you need quickly, but come with relatively higher interest rates and a short loan term. The loan term is usually less than one year.

When does a bridge loan make sense?

Bridge loans make sense if you have long-term funding in place for a later date. For example, a bridge loan would be valuable if you are trying to sell one property and purchase another simultaneously.  

Construction Loans

How do construction loans work?

There are two types of construction loans to consider when you are looking at a new construction build: construction-to-permanent and stand-alone. The term for these loans is usually less than one year. The monetary value for a construction loan is calculated based on the loan-to-value ratio or the after-repair value.

Construction-to-permanent loans specifically cover only the construction and later convert into a permanent mortgage once construction has finished. Stand-alone construction loans cover only the construction and require you to seek an additional loan for a permanent mortgage.

What are the requirements for a construction loan?

Construction loan eligibility is determined by more than your financial situation and credit score. Your down payment, experience, choice of contractor, and project feasibility also play a key role in your eligibility for a construction loan.

You must invest in quality contractors and planners who have a proven record of successful project completion and execution. Your lender will require a detailed plan to demonstrate how the project will move into completion.

When does a construction loan make sense?

A construction loan works best if you want to build your dream property and have met all of the requirements. Construction loans are hard to obtain since there is a lack of physical collateral until the building is complete. It is imperative that you find the right contractors to keep your project on budget, or you may be left with an incomplete building.

Development Loans

How does a development loan work?

A development loan helps you purchase and develop land into improved parcels. The first part of a development loan is the purchase of the land. The second part includes smaller amounts paid out each month to help cover the costs of development.

When does a development loan make sense?

A development loan makes sense if you are seeing a surge in land developmentā€”people moving to the area or other indications that your area is growing. This type of loan also makes sense if you are looking to improve the land you already own by developing it to further the needs of your business.

Fix and Flip Loans

What are fix and flip loans?

A fix and flip loan is designed to help you purchase a property to fix up and sell quickly. These loans include the purchase price, renovation materials, labor costs, holding costs associated with having the finished property sit before being sold, and costs to sell the property. Every lender is different, and the down payment will vary based on the purchase price, location and value.

When does a fix and flip loan make sense?

Fix and flip loans from private lenders work best when you have a proven record of successful real estate projects. These loans make sense if you have the necessary down payment, a network of contractors and material sources, and realtors who can help you sell the property once finished.

Commercial Property Loans

How do commercial property loans work?

Commercial property loans, or commercial real estate loans, are similar to home mortgages. You can use these loans to purchase or renovate an existing commercial property. These loans have specific requirements for the down payment amount, loan term, and interest rate.

When does a commercial property loan make sense?

A commercial property loan makes sense when you are looking to expand your business with a new property. This type of loan is hard to get with a regular bank because their credit and business requirements are tough to meet. Working with a private lender, like Diversified Funding Incorporated, may enable you to work creatively to get a commercial property loan.

Need a Short Term Loan Now?

Diversified Funding Incorporated can help with your next real estate investment by providing you with the best short term loan options. Located in Boston, MA, we specialize in secured real estate loans across New England. We can help you get the cash you need for your next real estate project. Reach out today to talk with our team about your current or future investment.