When building a successful business as a real estate entrepreneur, it’s important to become well versed in the world of private lending and real estate investing. Some of the most common mistakes come from investors not knowing which loan program is right for a potential investment property or the differences between each program.
There are two types of loan programs; term loans and bridge loans.
The differences between the two are based upon the borrower’s credit score, employment history, length of the loan, and rates. While term loans require more underwriting, they also offer lower risks and less risk, making it a deeply attractive option to borrowers who find the concept but not the details of a hard money loan appealing.
Unlike a Hard Money Bridge Loan, a Term Loan has much more vigorous financial checks, collateral, and a minimum FICO credit score of 650. Private Lenders require this because of the requested amount of the loan and the lender wants to prevent the risk of defaulting or the borrower not being able to make their scheduled payments.
The following are examples of term loan programs:
- No-Income Verification/Stated Income Loan – A No-Income-Verification loan is a type of loan program that doesn’t require the borrower to provide documentation of income. Unlike conventional mortgages, a stated income loan is easier to be approved versus a traditional loan and is a way for self-employed borrowers who would not qualify for traditional financing to achieve their investment dreams. These types of loan programs are for investment properties only and not for primary residences for an owner-occupied property.
- NO-DOC Loan – The relationship between the investment home buyers and the mortgage lender, is based on the non-documented loan agreement that the borrower can afford investment property loan payments and will make them. Like a no income verification mortgage loan, a NO-DOC loan program has less regulation and higher rates than conventional loans. Although risky, the flexibility and quick approval process for the borrower makes it an easier decision for many real estate investors.
- Soft Money Loan – Soft money is defined as a long-term (5/1 ARM, 7/1 ARM, 30 Year Fixed) real estate investment loan program that closes faster (2-3 weeks) than a conventional loan. This type of loan program requires more underwriting than a hard money loan, allowing it to have lower rates and greater security. It is based on both the borrower’s credit score (minimum 650) and the property’s LTV, and is always a term loan rather than a bridge loan. An innovative approach combining the benefits of hard money that have lower risks, higher rates, and a short-term loan time frame – contrastingly, soft money programs fit many borrowers far better due to the program’s lower costs, lower rates, and longer terms.
Term Loan Overview:
- Investment Properties Only: 1-4 Family, Condos, Townhomes, Multi-Family, Commercial, Mixed Use, Office, Retail, Industrial, Warehouse
- Rates Starting at 4.375%
- Loan Amounts – $100K – $5M
- Up to 85% LTV
- Blanket Loan Options Available
- Fixed rates/Adjustable
- 5/1 ARM, 7/1 ARM, 30 Year Fixed
- Interest Only Option Available
- Foreign Nationals Eligible
- No Prepayment Penalty Option Available
While hard money bridge loans are still the most popular option for many real estate investment scenarios, term loan programs will increasingly become the type of loan used by first-time real estate investors or borrower’s looking to hold a long term investment property, and investors with a high credit score who are looking for higher LTVs and lower interest rates.
At Stratton Equities, our mission is to make private mortgage lending easy, efficient, and worry-free. We help other experienced investors, borrowers, and professionals in the mortgage and real estate industry succeed with a simple 3-step process, including Pre-Approval, Processing & Underwriting, and Funding.
Call us at 800-962-6613 or contact us at [email protected] and apply now at https://www.strattonequities.com/loan-pre-qualification to find out whether you are eligible for loan pre-qualification!
