Short Term Real Estate Loans

For Property Investors Buy, renovate and resell your property with a short term real estate loan

Current as of

Interest Rate

9.25 - 11.25%

Origination fee

1.25 - 1.75%

Loan To Cost (LTC)

up to 90%

Construction Financing

up to 100%

Loan To ARV

up to 75%

Term

up to 18 months

Minimum Loan Amount

$100,000

Maximum Loan Amount

$5,000,000

Minimum FICO

650

Type of Property

Residential 1-4 units, condos, townhomes

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The 5 Main Types of Short Term Real Estate Loans

1. Fix And Flip Loans

Fix and flip loans are specifically designed for projects in which a real estate investor purchases a property, renovates it, and then sells it for a profit. These loans are typically structured as hard money loans, offering quick access to capital and, in many cases, interest-only payment options that cater to the unique needs of fix-and-flip projects. By providing fast funding, fix and flip loans allow investors to seize promising opportunities without delay.

Lenders offering fix and flip loans generally calculate the eligible loan amount using key metrics such as the loan-to-value (LTV) ratio, loan-to-cost (LTC) ratio, and after-repair value (ARV). These formulas help determine the current and potential value of the property post-renovation, offering lenders a clearer picture of the project’s profitability and associated risk. The LTV ratio assesses the loan amount relative to the property’s purchase price, while the LTC ratio considers renovation costs. The ARV, however, focuses on the projected market value once renovations are complete, which can be pivotal in gauging the overall return on investment.

Key Features of Fix And Flip Loans

  • Fast funding: Funds are often provided within as little as a few days so that real estate investors can take advantage of good real estate opportunities when they arise, and beat the competition.
  • Loan amount: Up to 90% of the purchase price and 100% of the renovation costs are usually covered by fix and flip loans.
  • Interest only payments: In some cases, interest only payments are the only requirement until the loan term concludes, where a balloon payment is then required. For fix and flip investors, this is particularly useful as they can manage their cash flow better by only paying the interest until the house is sold and then using the proceeds from the sale to settle the principal loan amount.
  • Interest rates: Fix and flip loans come with interest rates anywhere between 9.25% and 11.25%typically, due to the higher risk associated with these loans and the short duration.
  • Loan terms: Fix and flip loans are typically between 6 and 12 months, but they can be extended up to 18 months if the fix and flip project takes longer than expected.

2. Hard Money Loans

Hard money loans are asset-based, meaning they are secured by the property itself rather than the borrower’s income or credit profile. This type of financing places primary emphasis on the value and potential of the property, allowing investors to secure loans based on the asset’s worth. While some lenders may still require a minimum credit score, the criteria for hard money loans are typically much less stringent than those of traditional financing, making these loans accessible to a broader range of real estate investors.

Hard money loans are especially popular among house flippers and real estate investors who need to move quickly to capitalize on opportunities. With faster approval times and less red tape, hard money loans can be closed in days rather than weeks, providing the speed essential for competitive real estate markets. This flexibility also appeals to investors who might be financing one property while acquiring another or who are looking to invest but may not meet the strict requirements of conventional loans.

For those who may not qualify for traditional loans—or who choose to avoid the lengthy qualification processes—hard money loans offer a practical alternative. Their asset-focused structure allows investors to secure funding even with less-than-ideal credit, making hard money loans a valuable tool for those who prioritize quick access to capital and simpler qualification criteria.

Key Features of Hard Money Loans

  • Origination Fees: Hard money lenders usually charge origination fees which can range from 1.25 – 1.75% of the loan amount.
  • Approval Process: The main drawcard for hard money loans is the fast approval process.
  • Underwriting: The criteria required to qualify for hard money loans is less stringent than many other loans, due to the fact that they’re secured by the property itself.
  • Loan Terms: Another aspect that makes hard money loans attractive is that they usually have flexible loan terms which can be adjusted based on each borrower and their situation.
  • Interest Rates: Short term hard money loans usually have higher interest rates, in the region of 9.25 to 15%, depending on the lender and risk involved.

3. Construction Loans

Construction loans are tailored to finance real estate development projects, whether building new properties from the ground up or undertaking substantial renovations. These loans provide essential funding for investors or developers who need capital to complete each phase of their project, making them an ideal option for large-scale construction projects or major property enhancements.

One of the defining features of construction loans is that funds are typically disbursed in stages, aligned with the progress of the project. This phased disbursement—often referred to as a “draw schedule”—means that funds are released as each construction milestone is achieved, helping to manage cash flow and reduce interest costs since borrowers only pay interest on the funds as they’re used. Due to this structure, lenders often require a clear and detailed construction plan, ensuring that each phase is accounted for and that project timelines and budgets are realistic.

Key Features of Construction Loans

  • Loan Terms: Typically, construction loans are between 12 and 36 months.
  • Draw Schedule: Funds are disbursed in phases, aligned with project milestones. This reduces the amount of interest required, and allows the project to get cash injections as needed.
  • Uses: Construction loans can be used for construction projects, major renovations or real estate developments with a clear timeline.
  • Appraisal: The loan amount is often based on the value of the property once construction is completed. So an appraisal usually needs to be done to determine what the likely total sale value of the completed property will be.

4. Bridge Loans

Real estate bridge loans are specifically designed to bridge the gap between short-term financing needs and longer-term financial solutions. These loans provide interim funding, helping investors transition smoothly between properties or cover financial needs while awaiting a permanent mortgage or other long term financing. Bridge loans are particularly useful for scenarios where investors need immediate access to capital to secure a new property, often before the sale or refinancing of another property is completed.

Real estate bridge loans offer fast funding, allowing investors to act quickly and avoid missing out on time-sensitive opportunities in competitive markets. These loans are typically structured with shorter repayment terms, usually requiring full repayment within 12 to 24 months. This shorter timeline aligns well with the purpose of bridge loans.

Key Features of Bridge Loans

  • Loan-To-Value: The loan to value ratio (which indicates how much of the property’s value is being financed by the loan) for a bridge loan is usually between 65% and 80%.
  • Interest-Only Payments: A bridge loan would usually require interest only payments until the end of the loan term, where the principal loan amount will need to be repaid.
  • Credit Score: Bridge loan lenders will require a good credit score.
  • Down Payment: A 20% down payment is often required for a bridge loan.

5. Short Term Rental Loans

Short term rental loans are designed specifically for investors interested in purchasing investment properties intended for short term rentals, such as vacation homes or Airbnb properties. Unlike traditional loans used for long term rental financing, these loans cater to the unique needs of short term rentals. Short term rental loans are structured to facilitate not only the acquisition of these short term rentals but also any renovations or upgrades that may be necessary to attract guests and maximize rental income.

These loans are particularly valuable for investors targeting high-demand tourist destinations, where short term rentals can generate substantial income. By supporting both the purchase and improvement of short term rental properties, these loans enable investors to take full advantage of prime locations and seasonal rental markets, where long term rental financing may not fall short.

Key Features of Short Term Rental Loans

  • LTV Ratios: LTV ratios for short term rental loans range from 70% to 85%, depending on the lender’s criteria and the borrower’s creditworthiness.
  • Qualification Criteria: Short term rental loan qualification is based on the borrower’s income, as well as the projected or actual income generated by short term rentals.
  • Underwriting: These loans offer flexible loan terms, often catering to each situation specifically. Rental income, local market demand, and seasonal occupancy rates all play a part.
  • Loan Terms: Short term rental loans may offer terms ranging from 1 to 30 years, depending on whether they are structured as fixed-term loans, interest-only, or balloon-payment loans.

How Do You Qualify For A Short Term Real Estate Loan?

Qualifying for a short term real estate loan is often easier than qualifying for a traditional loan. Once you’ve identified the right type of  short term loan, you can further investigate the requirements for that specific loan. Here are some tips for qualifying for the short term loans mentioned above, based on New Silver’s loan requirements:

 

Property Value

Most asset-based lenders will require a few key numbers at the outset: the property’s current market value, the After-Repair Value (ARV) once the renovations are completed, and the income potential for rental properties.

To support these numbers, it’s a good idea to have a property appraisal done, a comparative market analysis and any timelines that are required for renovations are being done. The more solid your plan is, the more likely you are to get approval.

 

Down Payment

Short term real estate loans often require a 20% down payment, but this can be as low as 10% or as high as 30%, depending on the circumstances. Some lenders may require proof of cash reserves that show that the borrower can carry themselves during the months with low cash flow.

 

Credit Score and LTC/LTV

Requirements vary by lender, but many asset-based lenders accept scores as low as 620 or even lower in some cases. Construction loans typically require a score of about 650, and an LTC of 90%. Fix and flip loans often require a FICO score of 650 and an LTV of 75%, while rent loans require a credit score of 660 and an LTV of 85%. While these loans do not hinge on the borrower’s creditworthiness necessarily, this will still play a part in determining the risk factor for the lender.

 

Exit Strategy

A clear exit strategy is an important part of an application for a short term real estate loan. Lenders will need to know that you have a clear exit strategy in place for repaying the loan. This could be selling the property, refinancing or rental income.

Do Traditional Lenders Offer Short Term Real Estate Loans?

The short answer is yes, some traditional lenders do offer short term real estate loans, but they are far less common than other loan options.

Traditional lenders are typically cautious when it comes to financing investment properties, as they are considered higher-risk compared to owner-occupied homes. This increased risk stems from the variable income associated with investment properties, such as fluctuations in rental demand and market volatility, which can impact the borrower’s ability to repay the loan.

Short term real estate loans often come with unique terms, including shorter durations, interest-only payment structures, or balloon payments, all of which differ from standard loan products. Traditional lenders, like banks, are bound by strict regulatory requirements and underwriting criteria, which often limit their ability to offer the flexibility that real estate investors need. In contrast, private lenders are typically more adaptable and can provide the tailored loan terms that suit various investment strategies.

This need for customization is particularly important for short-term real estate loans used for projects like fix and flip, bridge financing, or short-term rental investments, where real estate investors rely on flexible terms and fast funding. Traditional lenders’ inability to meet these requirements often leads investors to seek private lenders who can respond more quickly and structure loans around the unique demands of real estate investing.

Why Asset Based Lenders Are Far More Likely To Fund Your Project

When it comes to financing short-term real estate projects, investors frequently turn to asset-based lenders, as they are often more accommodating and likely to approve loans tailored to these unique needs. Unlike traditional lenders, who rely heavily on the borrower’s income and credit history, asset-based lenders primarily focus on the property’s value. This property-centric approach aligns well with the demands of real estate investors, allowing asset-based lenders to meet the fast-paced, flexible requirements of short-term projects more effectively than traditional financial institutions.

Here are several key advantages of using asset-based lenders:

  1. Faster Funding: Asset-based lenders typically offer a much quicker loan approval process. Since the emphasis is on the property’s value rather than the borrower’s financial profile, less underwriting is required, which can significantly shorten the entire loan process. This faster funding is ideal for investors who need immediate capital to secure time-sensitive opportunities in competitive markets.
  2. Flexible Terms: Asset-based loans often come with highly flexible terms, catering to the specific needs of each project and the investor’s strategy. These lenders frequently offer loan options such as interest-only payments, custom draw schedules, and loan terms that align with project timelines and cash flow requirements. This adaptability means asset-based lenders can provide loan structures that are better suited to the realities of real estate investing, making them a popular choice for fix-and-flip projects, short-term rentals, or bridge financing.
  3. Higher LTV Ratios: Asset-based lenders often provide higher loan-to-value (LTV) ratios than conventional loans, which allows investors to maximize their investment leverage. With a higher LTV, investors can finance a larger portion of the property’s value, preserving more of their cash for other project expenses or future investments. This enhanced leverage can be particularly beneficial for experienced investors looking to scale their portfolios.
  4. Less Stringent Credit Requirements: By using the property as collateral, asset-based lenders can often approve loans for borrowers with lower credit scores or unconventional financial backgrounds. For real estate investors who may not meet the strict credit requirements of traditional lenders, this leniency is an attractive prospect. It opens up financing options for those who might otherwise struggle to obtain funding, providing a valuable avenue for investors to pursue their real estate goals without the barriers posed by traditional lending standards.

Final Tips For Securing A Short Term Real Estate Loan

  • Be prepared with all relevant documents and for any potential questions a lender may have, this can speed up the approval process.
  • Be ready to explain any unique aspects of your project, as each loan type and lender has different requirements.
  • Consider all the loan terms, not just the rates, to see which loan is the best fit for your needs.
  • If you have a low credit score, consider partnering with someone to be your co-borrower. Make sure your co-borrower has a strong credit score.
  • Using a down payment and demonstrating cash reserves shows the lender that you are prepared and invested in the success of the project.