Hard Money Loans are a type of temporary loans that can help you improve your credit scores when they are down. This article aims to guide borrowers to prepare for a transition from temporary to permanent loans. First, let’s differentiate the two types of loans.
Temporary and Permanent Loans Defined
Despite the term, permanent loans are still temporary. More accurately described as “long-term loans,” the amortization period for these types of loans can range from 5 years to 30 years. In real estate, most investors finance their rehab or new construction using short term loans or construction loans. Once the construction project has been completed, an investor can proceed with a permanent loan. These loans can be provided by traditional or conventional lenders like commercial banks or the FHA.
Temporary loans, are short-term financial agreements such as a hard money loan or a private loan. The borrowing period can range from 12 to 36 months, thus they are also called “short-term loans.” These loans are typically offered by private real estate lenders or hard money lenders and allows an investor to purchase a property right away and then refinance later. Unlike conventional or traditional lenders, temporary or hard money loans have less stringent credit and document requirements.
Depending on your investment strategy and goals, both temporary and permanent loans can be beneficial to your real estate business. Let’s examine how investors can use permanent and temporary loans for real estate investments.
Permanent Loans for Real Estate Investors
Permanent loans offer longer loan terms, lower interest rates, and more affordable monthly payments. When you’re investing for the long term, such as when you buy and hold a property, a permanent loan will help you maximize your earnings and provide a better cash flow.
The loan requirements and qualifications for a permanent loan hinge on long-established credit parameters. This can sometimes make it challenging to get a permanent loan. Below are some reasons why your perm loan application is declined:
- Your credit scores are way below the minimum requirement
- Your total income is not enough to cover monthly amortizations
- Your real estate property is not acceptable or qualified as collateral by a bank, such as when it’s a distressed property you intend to flip
- You do not have enough money or funds for the minimum downpayment or equity required
Temporary Loans for Real Estate Investors
On the other hand, temporary loans or short term loans are much easier to apply for and can be availed even when you don’t have a great credit score. You can use short-term loans for a variety of investment purposes. You can get temporary loans to purchase a residential or commercial property, rehab and flip a home, or even for your new construction projects. Even better, you can refinance through a permanent loan.
Here are more reasons how a short term hard money loan can be a better choice for your next investment project
- You need to close the deal ASAP
- Some lenders do not require prepayment penalties so you can refinance without worrying about extra fees
- Repeat borrowers enjoy smoother transactions, customized and personalized services
- Shorter loan terms could mean you can free the property for possible refinancing earlier
- Temporary loans help you build your credit so you can get higher chances of getting approved for permanent loans
From Temporary to Permanent Loans
At GL&L Holdings, we help our borrowers gain enough credit experience. This helps improve your credit standings for so you can secure loans from traditional financing institutions. We can help you address the problems that caused you to not qualify for a traditional loan. We can help you get funded in one way or another through our extensive network of bank partners.
Final Words
If you’ve been wanting to invest in real estate but your credit score is holding you back, don’t despair. Short term loans can be one way for you to rebuild your credit by paying your amortizations and bills on time. With this in mind, our goal is always to help you succeed in real estate investing and help you get a permanent loan.
Call us now at (832) 770-9415, or use our online contact form and allow us to guide you and make the process a lot easier for you. We can also help you assess all of your options. We can even joint venture (JV) with you to help you mitigate your risks.
