What is a Bridge Loan?

If you’re planning on selling your home and moving to a new home, finding the cash flow to make that move can be difficult. With bridge loans, you can get the funding you need to purchase your new home before you sell your existing home.

So, how do bridge loans work? Is a bridge loan right for you? We’re here to help you understand. Let’s take a closer look at bridge lending so you can determine if a bridge loan is the solution to your financial obstacles.

What is a Bridge Loan?

A bridge loan is a loan that’s designed to bridge the gap between two loans during a transitional period. Let’s say you’re selling your existing home and buying a new home in another city. You can sell your existing home and use that money to finance your new home purchase, but what if you can’t sell your home before you move?

With bridge lending, you can take out a temporary loan — usually between six months and a year — to finance your new home purchase before you sell.

How Do Bridge Loans Work?

You may have heard of bridge loans, but how does a bridge loan work?

Bridge lending is a relatively straightforward concept. If you need help purchasing a new home before you can secure permanent financing, you can take out a bridge loan before you sell your home or purchase your new home. Unlike other loan programs, bridge loans are specifically designed to bridge the gap between two long-term real estate loans.

Homeowners typically wait until they’ve accepted an offer on the home they’re selling to purchase a new home, but that’s not always an option. If you’re starting a new job or need to move quickly for other reasons, a bridge loan can help you purchase a new home before your existing home is under contract.

A bridge loan by definition is considered a specialty loan — and these loans should be paid off within a few years.

Advantages of Bridge Lending

The pros and cons of bridge lending

Immediate Access to Cash

People choose bridge lending for the same reason they choose hard money loans — quick access to cash. When you get approved for a bridge loan, you can receive your funds in just a few weeks. Not only does this eliminate the stress of waiting to buy a home, but it also gives you the freedom to jump on any lucrative real estate opportunities you discover before those properties sell.

Keep in mind that the time it takes to fund your loan will vary depending on the lender you choose.


Bridge loans offer flexible terms, so you can usually find something that works for your financial situation. You don’t have to borrow more than you need, so you can keep your total debt low and make it easier to repay your loan.

While bridge loans do offer some flexibility in terms of what you can use them for, they’re typically used to purchase a new home before selling your existing home. That being said, you can technically use a bridge loan to build a home — similar to a hard money construction loan.

Bridge Loan Risks & Considerations

Higher Interest Rates & Costs

When you take out a bridge loan, you can expect to pay higher interest rates and associated costs than you would with a traditional loan. Ideally, you want to wait until your old home is under contract before moving and buying a new home. If you can’t sell your home and decide to take out a bridge loan, expect higher loan costs.

Short Repayment Period

Unlike other types of loans, bridge loans are specifically designed to be short-term loans with short repayment periods. Bridge loans usually last between six months and a year, and you have to repay your bridge loan within 12 months in most cases.

If you decide to take out a bridge loan, make sure you have the means to repay it in a short time.

Who Should Consider a Bridge Loan?

If you’re moving soon and you haven’t sold your existing home, you can take out a bridge loan to finance your new home purchase. While traditional mortgages are a better alternative to bridge loans if you can wait to move until after accepting an offer, bridge loans can give you access to the money you need to buy a home.

Homebuyers in competitive markets benefit more from bridge loans. Quick access to cash flow means you can take advantage of lucrative real estate opportunities as soon as you spot them, making it easier to find a great deal on your dream home.

Real estate investors can also use bridge loans to finance real estate investments. If you’re investing in rental property, you can also consider taking out a hard money loan for rental properties.

Bridge Loan Requirements

Bridge loan rates typically fall between 4% and 13%

Before you apply for a bridge loan, take some time to weigh your options and make sure you qualify. Bridge loan requirements are fairly simple, but there are a few things you need to have to get approved:

  • Collateral: Bridge loans need to be backed by collateral in many cases — typically real estate or business inventory. If you don’t have collateral, your loan may be denied.
  • Equity: You need to have at least 20% equity in your home to get approved according to most bridge lenders. If you don’t have 20% equity, you may have to wait to take out a loan.
  • Debt-to-Income ratio (DTI): Like any loan, lenders look at your debt-to-income ratio to make sure you’re not taking on too much debt to repay your bridge loan.
  • Credit score: Your credit score is also a factor when it comes to bridge loans — although exact credit score requirements vary by lender.
  • Exit strategy: Lenders want you to have an exit strategy to repay your loan, which may include selling your primary property or other investments.
  • Proof of income: Providing proof of income shows lenders you can afford to repay your loan if something unexpected happens. Again, exact requirements vary by lender and the amount you’re trying to borrow.

How to Apply for a Bridge Loan


Before you apply for a bridge loan, take some time to lay out a detailed plan and gather any financial records and property details you might need to complete your application. You should have a clear exit strategy and a good understanding of bridge lending before you apply for a loan. You also need to have a plan for securing long-term financing for your new home or investment property.

Finding a Lender

Whether you’re looking for a bridge lender or a hard money broker, do your research and look for top lenders. Some banks and lenders specialize in short-term loans — and some are even known for offering bridge loans with competitive rates.

You can also reach out to a few lenders to learn more about loan terms and interest rates before you apply. The more time you spend researching, the more likely you are to get a favorable loan.

Application Process

Once you decide on a lender, you can start filling out your application. Make sure you provide any required supporting documents with your application. Your lender will also check your credit and appraise your property as part of the application process.

From the time you submit your application, it can take anywhere from a few days to a few weeks to receive funds.

Loan Underwriting

If your loan application is approved, you’ll move on to the underwriting stage. Your lender will take a closer look at your application to assess risks and finalize your loan terms. If you have any questions about your loan, you can ask them during this time.


When the loan underwriting process is complete, it’s time to close your loan by double-checking everything and signing the loan documents. You may also need to pay fees at this time.

Secure Real Estate Funding with Ease

Whether you’re a homeowner on the move or a real estate investor, bridge loans are one of many resources you have at your disposal. Bridge lending is especially beneficial if you want to purchase a new home before you sell your existing home and move.

While bridge loans are right for some people, they’re not for everyone. You might consider taking out a hard money real estate loan instead. At Source Capital, we specialize in hard money loans. You can get a free, no-obligation quote in a few short minutes. Apply now or contact us to find out how a hard money real estate loan can help you.

DSCR Loan: Everything You Need to Know

Securing a loan can be tough — especially when you don’t meet income requirements. If you’re having trouble securing a traditional mortgage loan, there are other routes you can take.

DSCR loans are one option for people who don’t have the personal income to qualify for a home loan. If you’re investing in a rental property, you can apply for a DSCR loan instead of a traditional mortgage.

You may be wondering how these loans work and what the DSCR loan requirements are. We’ll break down everything you need to know in this brief guide. You can use the links below to jump ahead to a particular section.

What is a DSCR Loan?

A DSCR loan, or debt service coverage ratio loan, is a type of non-traditional mortgage used primarily for investment properties. The key factor in qualifying for a DSCR loan is the property’s cash flow rather than the personal income of the borrower.

How Do DSCR Loans Work?

When applying for a DSCR loan, your eligibility is determined by the debt service coverage ratio itself, an essential financial metric that lenders use to assess your property’s cash flow and its ability to cover debt obligations.

DSCR is calculated by dividing the property’s annual net operating income (NOI) by its annual total debt service (the total amount of principal and interest payments for the year).

For example, if a property generates $150,000 in annual rent and has $100,000 in annual debt payments, the DSCR would be 1.5. Usually, lenders require at least a DSCR of 1.0 for a DSCR loan.

How to calculate debt service coverage ratio

What Are DSCR Loans Typically Used For?

Real Estate Financing

If you’re investing in rental property, you can use a DSCR loan to secure a loan even if you don’t meet personal income requirements. Once your DSCR loan is paid off, you can continue renting out your property for profit.

DSCR loans can also be used for commercial buildings and other types of real estate that generate income.

Business Expansion

Business owners may take out DSCR loans to expand business operations or purchase new equipment. Commercial DSCR loans can also be used to invest in commercial property to expand your business.

Pros & Cons of DSCR Loans

DSCR loans can help you secure funding for rental property, but they’re not right for everyone. Take a look at some DSCR loan pros and cons before you make your decision.


When you apply for a DSCR loan, your approval is based on what the property earns rather than your personal income. You can also secure DSCR loans with a lower credit score. If you don’t meet the income or credit score requirements for a traditional loan, you may still meet DSCR loan requirements.

You generally don’t have to verify your income or provide W-2s and tax returns when you apply for a DSCR loan. Other loans and loan programs typically require a lot of paperwork that isn’t necessary for DSCR loans.

If you want to invest in multiple properties, it’s easier with DSCR loans. As long as your DSCR is high enough, you can continue investing in rental properties.


DSCR loan rates are typically higher than conventional loans, which means you end up paying more interest. While this difference may seem marginal, it can add up quickly when you’re taking out a big loan for a rental property.

In many cases, you have to make a larger down payment with a DSCR loan than a traditional mortgage. While down payments vary depending on the lender you choose, you may have to put as much as 20% down with a DSCR loan.

If your property isn’t performing up to expectations, it can be difficult to repay a DSCR loan. This is why it’s important to maintain your rental properties and actively search for tenants when they’re vacant.

Loan conditions are often less favorable with DSCR loans — and that’s not limited to interest rates. If you decide to repay your loan early, you may face early repayment penalties with a DSCR loan.

DSCR Loan Requirements

Whether you’re taking out a hard money construction loan or a DSCR loan for a rental property, requirements vary by lender. The guidelines below can help you understand what lenders look for when you apply for a DSCR loan.


If you want to secure a DSCR loan, you need a property that generates rental income. That property must generate enough rental income to cover 100% of debt payments — which is also known as a DSCR of 1.0. This is generally the minimum requirement for lenders.

Lenders may also want to do a formal appraisal and look at profit and loss statements for the property before giving you a loan. In some cases, you may need to provide documentation of current rental agreements.

Most lenders require a DSCR of 1.0


While your credit score isn’t as important with DSCR loans, some lenders will deny your loan if your credit score is too low. Your loan may also be denied if you don’t have reserves to make debt payments if your property is vacant for a period of time.

Down Payment

Most DSCR lenders require a higher down payment, so you need to have cash to secure a DSCR loan. Depending on the lender you choose, you can expect your down payment to be anywhere from 20 to 30% of the purchase price of your property.

Legal & Compliance

Since DSCR lenders rely on your property income to collect debt payments, you need to have property and liability insurance at all times. Your home must also meet all local zoning and safety regulations.

How to Get a DSCR Loan

Applying for a DSCR loan isn’t rocket science, but there are a few things you should do before you apply. Here’s what you can do before you talk to a lender for a DSCR loan.

Evaluate Your Property

Start by evaluating the property you’re considering purchasing. Divide the potential rental income by the monthly payment you’d have to make with a DSCR loan. If this number is higher than 1, you know that property generates enough income to cover your DSCR loan.

Gather Financial Documentation

Before you can get approved for a DSCR loan, lenders will want to look at several documents including property lease agreements, expense reports, and current rental records. You don’t have to provide a W-2 or income tax return, but make sure you have all the necessary financial documents related to the property you want to invest in.

Shop For Lenders

Once you find an ideal rental property and gather all the necessary documents, you’re ready to start applying for loans. Before you submit any applications, take some time to research DSCR lenders and find the best loan offer you can get. You can compare loan quotes to figure out which loan is best, looking at everything from interest rates to specific loan terms.

Submit Your Loan Application

After you decide on a DSCR lender, it’s time to apply for a loan. When you apply for a loan, make sure you provide accurate information and all the necessary documentation. Mistakes can extend the application process. If you need help applying, a DSCR lender can help.

Undergo Property & Loan Review

Now that you’ve applied for a loan, your lender will want to review the property and loan before finalizing it. This may include a formal appraisal and a review of profit and loss statements for that property.

Finalize the Loan & Make Regular Payments

Last but not least, it’s time to finalize your DSCR loan so you can purchase your rental property. Make sure you maintain your rental property and minimize vacancies so you can make loan payments on time.

If you have any questions about your loan, take a moment to ask them before finalizing your loan.

Secure Real Estate Funding with Ease

DSCR loans can benefit borrowers who have trouble qualifying for a traditional loan, but it’s important to weigh your options before you apply for a loan or purchase a rental property. Qualifying for a hard money loan may be faster and easier.

At Source Capital, we work hard to empower you to do more financially. Our hard money loans offer a faster approval process and less stringent requirements, so you can secure the funding you need. Apply now or reach out to learn more about our hard money loans.

How to Get a Loan for a Rental Property

A rental property gives you the chance to increase your cash flow through lease payments while also potentially profiting from long-term equity growth. If you are considering this type of investment, you should know that rental property loans are different from standard home mortgages.

Even if you have already borrowed to pay for your primary residence, you might still wonder how to get a loan for a rental property. While some financing programs, such as FHA loans, are available for purchasing a rental property, there are different options, including hard money loans, that you need to understand if you want to invest in real estate.

Here is a closer look at getting a loan for a rental property and what details you should be aware of during the application and closing process.

What Is a Rental Property Loan?

A rental property loan is a mortgage to purchase a residential property. However, unlike standard home mortgages, rental property loans are for buildings that will be occupied by long-term tenants or short-term guests.

The terms, interest rate, and monthly payments are important for rental property loans because these details can affect the amount of profit you earn from tenant payments.

Rental Property Loans vs. Conventional Loans

Some aspects of rental property and conventional home mortgage loans are similar, but there are also a few important distinctions.

Here are some of the major similarities:

  • Both types of mortgages have a similar application process. The lender will run a credit history check and ask to see financial documents related to your income, assets, and current debts.
  • Rental and conventional loans come with similar terms. Both are typically amortized over 30 years, although 15-year loans are also available.
  • Both loan types have down payment requirements.

There are some essential differences between conventional and rental loans that you need to understand before applying for the latter.

  • Lenders assign a higher level of risk to rental property loans. This means that the interest rate could be higher, and you will have to make a larger down payment of between 10% and 20%. The stricter terms allow the lender to make up for the higher risk.
  • Rental property loans have a stricter underwriting process. For example, the lender may ask for cash flow data from investments or other properties in addition to your income and bank statements.
  • Lenders may require you to have additional funds to cover six or more months of mortgage payments, insurance, and taxes, in reserve.

Overall, you can expect a similar application process for a rental property mortgage, but you will likely need to make larger upfront payments and provide more information than for a conventional mortgage.

How to Get a Loan for a Rental Property

Can you get a loan for a rental property? There are four main factors that you need to consider before you decide to follow your real estate investing ambitions:

  • Credit Score: Lenders will always look at your FICO credit score at the start of the application process. For most lenders, the absolute minimum score is 620, which is typically regarded as a “fair” score on the FICO scale. A score above 670 will put you in the “good” range and qualify you for better interest rates. The best rates are for those who have a “very good” rating of 740 or higher. Since interest rates are higher on rental properties, increasing your score to the “very good” range can help make the loan more affordable.
  • Down Payment: The down payment requirement for a residential mortgage can be as low as 3% of the total purchase price. However, because of the higher risk associated with rental properties, lenders often ask for a down payment of 20%. You may be able to lower the amount of the down payment if you are willing to purchase mortgage insurance.
  • Savings: Lenders may require you to have savings to cover six months of your mortgage, insurance, and tax payments on the property. This amount can help cover the mortgage costs if you do not find tenants right away. Savings requirements can vary by lender and could depend on other factors.
  • Debt-to-Income Ratio: The debt-to-income ratio (DTI) is the amount of income you have versus the amount of debt you carry. It gets expressed as a percentage. You can think of it as the amount of income that goes toward paying your debts each month. The ideal mortgage applicant has a DTI of between 28% and 36%. This shows that you can manage loans but that your finances are not too strained. Since real estate investors may already have a conventional mortgage for their primary residence, a DTI of up to 43% to 45% is acceptable for some lenders.

You should position yourself to score well in each of the categories for the best loan application approval opportunities.

Types of Rental Property Loans

The first step in getting a loan for a rental property is choosing which type best fits your needs and financial situation. Factors for making this decision may include how long you plan to hold the property, your current credit score, your level of experience as a real estate investor, and your down payment amount.

No mortgage is perfect for every situation, so you need to understand the different options and find the best loan type for your current circumstances.

Conventional Loan

Traditional lenders, such as banks or credit unions, offer conventional mortgages. These institutions may be more consumer-friendly and willing to work with people who have a lower credit score or less money for a down payment. They may offer solutions such as mortgage insurance or a second, separate loan to cover a larger down payment.

However, if you are wondering how to get a real estate loan with bad credit, a regular bank or credit union may not be the best option. You will still likely need a fair or good credit score to get a loan from these financial institutions.

Hard Money Loan

Hard money loans are different than conventional loans because they do not come from a bank or credit union. Instead, private investors lend the money for real estate purchases. These are meant to be short-term loans for flipping a property or purchasing a rental property with a plan to refinance once it is up and running.

Hard money loans allow you to use the property as collateral. If you default, the lender takes over the property. This puts more focus on the value of the property and less on your credit score and other factors that are essential during the conventional loan application process. This means you can apply for a hard money loan and get an answer very quickly.

You can also get residential hard money loans. Because they require less documentation than standard loans, the application process is faster, and you may be able to qualify with a lower credit score.

FHA Loan

The Federal Housing Administration (FHA) does not give rental property loans. Instead, they insure mortgages from approved lenders. Thanks to this extra insurance, the lender can offer better terms, such as a lower down payment (as little as 3.5 percent). You can also qualify for a loan with an FHA loan with a lower credit score.

VA Loan

A Veterans Affairs (VA) loan is for veterans, active military members, and qualifying surviving family members. The VA guarantees these loans, allowing lenders to offer more favorable terms. For example, some loans do not require a down payment, and they have favorable interest rates. Also, since the VA guarantees the loan, the borrower does not need to pay for mortgage insurance. VA loans are only for properties that you occupy, so they only work if you plan to purchase a multi-unit rental property and live in one of the units.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) allows you to borrow against existing equity in your property. If you would like to make expansions or improvements on a rental property, for example, you can use a HELOC. Because it is secured by the property, a HELOC comes with favorable terms, including a low interest rate. Also, you can access the money when you need it, much like a credit card.

A HELOC does not allow you to purchase a new property. I is only for improvements to real estate you already own.

Wrapping Up: How to Get a Loan for a Rental Property

The best type of rental property loan depends on your needs and your credit score, debt-to-income ratio, down payment amount, and savings. While it is possible to get a conventional loan for an investment property, you can also use a hard-money lender like Source Capital. With a simple and rapid application process that focuses on the property’s value rather than your financial information, you can use Source Capital loans to purchase a rental property.

Visit Source Capital to find a reliable guide to hard money loans for your rental property.

What Is a Subprime Mortgage?

If you have low credit, you might think you have few options for investing in real estate. However, many types of loans exist for individuals with low credit scores. 

When applying for investment property loans, traditional lenders look at your credit, finances, and job history to determine your ability to repay the loan and evaluate risk. While some individuals don’t qualify for a conventional mortgage, they might qualify for a subprime mortgage. 

Individuals may obtain subprime mortgages with lower credit scores, making them a greater risk to the lender. Unfortunately, these loans often come with higher interest rates, which can rise significantly over time. Still, many borrowers can benefit from these loan offerings, but they have pros and cons. So what is a subprime loan and, more importantly, is it the right option for your next real estate investment?

What is a subprime mortgage?

Whether you flip a home, purchase a rental property, or become a first-time homeowner, you likely need a mortgage. Unfortunately, obtaining a mortgage loan with bad credit can be challenging. Luckily, many lenders offer subprime mortgages that cater to individuals who might not meet the criteria for a conventional loan. A subprime mortgage is ideal for borrowers with low credit scores who might not qualify for another type of loan. These mortgage programs are designed for borrowers who present more of a risk, meaning they have a higher chance of defaulting on the loan. 

Prime vs. subprime loans

Mortgage lenders usually rate borrowers depending on the risk level, with higher scores denoting a borrower’s ability to repay the loan easily. For example, individuals with good credit are given a rating of A, with those with no ability to repay and higher risk receiving an F. Prime mortgages are for individuals rated higher, while lower-rated borrowers typically receive subprime or no loan. 

To receive a higher rating, you must have a credit score of at least 680, a good debt-to-income (DTI) ratio of lower than 35%, a 20% down payment (depending on mortgage program and lender), and verifiable documentation of income, job history, and assets. The stringent requirements for conventional loans make investing in real estate much more challenging for individuals who fall just outside the requirements, even if they can prove their ability to repay. However, subprime mortgages can help individuals of all types invest in real estate by allowing them to qualify for a different type of mortgage. 

Unfortunately, subprime loans come with less favorable terms compared to prime mortgages and are often more expensive in the short- and long-term due to higher interest rates. However, subprime mortgages might be good for borrowers who want to purchase a primary residence or enter the world of real estate investing with lower-than-average credit scores. 

Pros and cons of subprime loans

Before applying for a subprime loan, borrowers must determine whether they can repay it. Unfortunately, some subprime mortgage borrowers don’t. Since they can’t predict how their interest rates will change, they’re subject to defaults that can affect their ability to purchase property in the future. 

Subprime mortgages are ideal for individuals with lower credit scores that are considered a higher risk to lenders. However, they’re not the right choice for everyone because they come with higher interest rates and fees. Below we go into more detail about the pros and cons of taking out a subprime loan. 

Advantages of subprime loans

Subprime mortgages can improve a borrower’s chances of getting approved for a loan, whether for a primary residence or investment property, allowing people to start investing in real estate earlier. Pros of subprime loans include the following:

  • Easier approval: Since subprime loans are for individuals considered riskier borrowers, they can make it easier for individuals with low credit scores to purchase a home and start investing in real estate without spending years improving their credit scores. 
  • Credit score improvements: Making on-time mortgage payments can improve credit scores, which can help borrowers get better loan terms in the future. 
  • Create a path to homeownership: Homeownership is a dream for many people. Although a subprime mortgage may not offer terms that are on par with prime loans, they do allow you to purchase property for yourself. 
  • Interest rate limits: While subprime loans tend to have higher interest rates than prime loans, there are some government regulations in place that effectively cap interest rates on these types of loans. 

Disadvantages of subprime loans

Unfortunately, some borrowers default on subprime loans because they haven’t demonstrated an ability to repay. Additionally, since many of these loans are adjustable rate mortgages (ARMs), borrowers can’t predict how much their mortgage rates will change or how expensive their loans will be over time. 

Even though subprime mortgages can help individuals with lower credit scores purchase property, there are several disadvantages, including the following: 

  • Higher interest rates: Since borrowers are considered a higher risk, subprime mortgage lenders usually have higher interest rates to protect themselves if the borrower can’t repay. 
  • Larger down payments: Subprime loans come with larger down payments because the borrowers are considered higher risk. This larger down payment is another way subprime mortgage lenders protect themselves if the borrower defaults on the loan. 
  • Smaller loan amounts: Since subprime mortgage borrowers have poor credit and, therefore, are a higher risk, lenders may offer smaller loan amounts to mitigate the risk of default. 
  • Higher fees: Lenders may also charge higher fees on the loans to recoup any money lost if the borrower fails to repay. 
  • Longer repayment periods: Subprime mortgage loans may take longer to pay off than prime loans, which can reduce monthly payments but means you’ll pay more over the life of the loan because of interest. 
  • Adjustable interest rates: Subprime mortgages are usually adjustable instead of fixed-rate loans, which can lead to increases in payments and the loan as a whole. 
  • Income requirement: While borrowers can get subprime mortgages with lower credit scores, income is still a determining factor for qualifying for the loan. Therefore, borrowers must provide documentation that they earn enough to pay the monthly mortgage payments. 

Subprime mortgage types

There are several types of subprime mortgages for borrowers with low credit scores, including:

  • Adjustable-rate mortgages (ARMs): As we’ve mentioned, most subprime mortgages are adjustable-rate loans, which means how much you pay will change depending on the market. ARMs usually start with a lower rate before shifting, which can dramatically increase your monthly payments and total loan amount. However, ARMs adjust rates based on market indexes, so market conditions can also cause your interest rate to drop. 
  • Interest-only loan: Interest-only subprime mortgages allow borrowers to pay only the interest due on the loan for an initial repayment period, which varies by lender. At the end of the interest-only period, the borrower can renew or refinance the loan to pay down the principal. When borrowers only pay the interest, their monthly payments are much lower for an initial period of time. However, once that period ends, they must pay the interest and loan balance. An interest-only loan is a good option for individuals who believe their income will increase in the next few years. Unfortunately, they can also be risky because interest rates can get so high borrowers can no longer afford to repay their loans. 
  • Fixed-rate: While most subprime loans are adjustable-rate mortgages, some lenders might offer fixed-rate loans. Fixed-rate loans offer borrowers a level of security since the interest rate is locked in and won’t change unless the borrower decides to refinance. 
  • Dignity mortgage loan: A dignity mortgage loan is a subprime in which borrowers pay higher interest rates for a few years, much like a traditional subprime loan. However, borrowers can have their interest rates reduced after they prove their ability to repay their mortgage by making on-time payments over a set period. Also, the additional money paid in interest goes towards the loan balance with an interest rate similar to a conventional mortgage. 
  • Negative amortization mortgages: Most mortgages have positive amortization, which means you pay the interest and loan balance, while the loan amount decreases each month. However, negative amortization is the opposite. With these loans, borrowers don’t pay enough to cover interest, so their balance will continue to grow with rising monthly payments. 
  • Balloon mortgage loans: Balloon mortgage loans allow borrowers to pay small amounts for the initial loan period, which means their loan balance will grow over time. Eventually, borrowers must make a large payment to repay the entire loan once the loan period expires.

Key takeaways

Subprime loans can help borrowers obtain a mortgage loan. However, the risks outweigh the benefits in many cases because the loans are much more expensive in the long run, and many borrowers end up defaulting. Subprime mortgages aren’t the right choice for everyone, and it’s always best to do your research and, if possible, work on improving your credit score so that you can qualify for a lower rate and better terms. 

If you have a low credit score, you still have options. Hard money loans from Source Capital are designed for borrowers with less-than-ideal credit. Unlike banks and traditional lenders that might deny your application if you have a low score, we focus more on property equity than your financial history. As a result, hard money loans are ideal for real estate investors of all types, allowing you to fix and flip or purchase commercial property. Wondering if a hard money loan is right for you? Contact us or apply now. 

What You Need To Know About Hard Money Construction Loans

Financing the construction of a real estate project may seem challenging. If you’re a seasoned real estate investor, you may only have experience finding funding for existing properties, or you may be new to investing and want a loan to help you build a new property. No matter your experience, hard money construction loans for builders can help you obtain the financing you need to start building a property. 

Unfortunately, traditional lenders can turn you down for any reason. They have stringent lending requirements, and not all builders will qualify. Luckily, you still have options. Hard money new construction loans can help you build faster and with less stringent requirements, securing the cash you need to start your project as soon as possible to increase profitability. 

Planning on building in a residential neighborhood and need funding, or wondering if hard money construction loans are right for you? In this article, we’ll discuss everything you need to know about having money construction loans to help you find the best financing option for your real estate project. 

What is a hard money loan?

Hard money construction loans are designed for builders and real estate investors who plan to sell or rent the property when it’s complete. Builders use hard money construction loans for investment projects, including residential and commercial properties. 

Hard money loans are not for homebuyers who plan to use the property as their primary residence. However, builders and investors use these loans to build houses, multi-family properties, commercial buildings, or subdivisions. 

Hard money loans are asset-based loans that are secured by collateral. With these loans, the collateral is the property being built, so if the borrower fails to pay back the loan, the lender can recoup their losses by selling the property to another builder or renting it out if it’s nearly finished. 

Builders and investors typically choose hard money loans because they’re easier to obtain than traditional mortgages since they have less stringent requirements and faster approval processes. In addition, since they’re asset-based loans, hard money lenders for new construction don’t base their decision on a borrower’s credit history and instead consider the value of the real estate project to determine eligibility. 

Hard money vs. traditional lenders

When comparing hard money vs. private lenders, you must consider eligibility, interest rates, loan amounts, and flexibility. As we’ve mentioned, it’s often easier to obtain a hard money construction loan than it is to get a traditional mortgage loan because they have less stringent requirements. Real estate investors and builders need constant incoming cash flow, and hard money loans can help with quicker closing times and easier application processes. 

Conventional construction loans are issued by banks and other lending institutions, while hard money loans are offered by third-party hard money construction lenders who can create their own lending criteria. These lenders offer greater flexibility and better loan terms. Hard money loans also have a shorter repayment period, allowing builders to start and finish their projects as fast as possible for higher earning potential. 

Since hard money construction loans are secured by the property, they often charge higher interest rates. Still, the loan approval process is usually much faster, allowing you to access funds as soon as possible, which can be beneficial if you’re working with deadlines. 

How do hard money loans for new construction projects work?

Securing a hard money loan is easier than securing funding from financial institutions because it’s based on more flexible requirements. Hard money construction lenders typically gauge a borrower’s ability to repay the loan by looking at the potential value of the construction project and how much it’ll sell or rent for. Ultimately, the main factor lenders consider is the deal’s profitability instead of focusing on the borrower’s creditworthiness. Of course, they’ll still review your credit history, but the most essential factor of the loan is the project’s value and whether the borrower can repay. 

Hard money loan terms vary by lender, but generally, they have four components:

  • Assessment: After applying for a hard money loan, the lender will evaluate the real estate project and the opportunity to determine if a borrower is eligible for the loan. They typically do this on a case-by-case basis to determine the overall profitability of a deal. 
  • Fees & interest rates: All loans have fees and interest rates a borrower must pay. Once the hard money lender has determined how much a borrower is eligible for, they’ll apply fees and set an interest rate. Interest rates are always higher for hard money loans because they carry more risk for the lender. In general, borrowers can expect a 2-5% processing fee and an interest rate of 12-21%. 
  • Terms: The terms for hard money loans vary, but most are typically paid off within 12 months. However, every case is different, and many lenders will work with borrowers to find the right payment terms for their loans. 
  • Processing: Hard money loans are faster to process than traditional loans. They can take anywhere from a few days to up to a month, but most are processed within a week or so. The fast processing time is one of the main advantages of these loans for real estate developers on tight deadlines. 

Advantages of a hard money construction loan

There are several advantages of hard money construction loans over traditional construction loans, including:

  • Faster time to funding: Most deals are funded within a few weeks as long as borrowers can demonstrate their ability to repay based on the profitability of the construction project. Since these loans are processed faster, real estate developers can get to work on their projects sooner. 
  • Flexible terms: Terms are determined by the type of deal, and since more flexible terms are available, hard money lenders allow borrowers to negotiate to increase the project’s profitability. We look at every application individually to help borrowers get the right terms. 
  • Convenience: Hard money construction loans are convenient because of the streamlined application and approval process. The underwriting process is fast and easy, and the loan only takes a few weeks to close. 
  • Flexible down payment requirements: Hard money construction lenders focus on the value of the real estate project instead of other factors. Therefore, they require lower down payments, but the requirement varies by lender. 
  • High loan amounts: Hard money construction loans offer higher loan amounts to ensure you have the funds you need to build your project as fast as possible. 

How do I get a hard money loan?

Obtaining a hard money construction loan is easier than qualifying for traditional construction loans. The process is easy and straightforward to help borrowers of all types get the funding they need for their real estate projects. 

Finding a lender

Since the terms for hard money construction loans vary by lender, you’ll want to find one that offers the most agreeable terms. Interest rates, terms, processing time, and loan amounts can affect your real estate project, so consider these factors when choosing a lender to work with:

  • Reliability: Always do your research to ensure you’re working with a qualified hard money lender or company. You can check online reviews or review references. 
  • Processing speed: How fast you can receive funding can impact the profitability of your construction project, so you should discuss timelines with prospective lenders to help you understand how fast you can receive funding after approval. 
  • Interest rates and terms: Interest rates and terms can also affect your project’s profitability. Hard money construction loans carry more risk for the lender, so they come with higher interest rates, but you can still find a lender with favorable terms and competitive rates. 

Filling out an application

Once you find the right hard money construction lender, you can apply. Depending on the lender, there may be an online application, or you’ll need to contact them to begin the process. 

You should prepare for the application by having a few key pieces of information and documentation ready to share with the lender, including:

  • The address of the project
  • The type of project
  • Construction costs
  • Scope of work
  • Exit strategy
  • Credit history
  • Profit margins

This information allows the lender to easily vet the project to determine whether it’s profitable enough for them to approve a borrower for a loan and determine how much they qualify for. 

Apply for a hard money construction loan with Source Capital

Hard money construction loans can help builders, developers, and investors secure the funding they need for their next real estate project faster and easier than traditional loans. 

Source Capital makes it easy to get fast, flexible funding for your project, whether you need hard money loans for rental properties or new constructions. You can apply online and receive an approval within 24 hours. 

Want to determine if a hard money loan is right for you? Contact us today. We can help you determine if you’re eligible for a loan and whether a hard money loan can help you secure the funding you need for your construction project. 

Getting Hard Money Loans For Rental Properties

Becoming a real estate investor is a lucrative opportunity, especially if you invest in rental properties. Unfortunately, many potential investors don’t know where to look for funding. You may consider traditional mortgages only to find they don’t fit your needs, especially when you need financing fast to allow you to turn a profit as quickly as possible.

Whether you’re fixing up a rental or purchasing one ready to rent, you need a way to finance the property, especially if traditional lenders have turned you down. When looking for ways to fund your investment, you have many rental loan options, including hard money loans. Hard money loans for rental properties can allow you to easily purchase property to diversify your portfolio, and they have their benefits over other funding options.

Hard money loans for rental properties can help you secure the cash you need to start turning a profit as soon as possible, but what are hard money loans for rentals, and how can they benefit you? Keep reading to learn more. 

What is a hard money loan?

A hard money loan is a type of asset-based loan secured by collateral. When using hard money loans for rental properties, the collateral or assets are the real estate property you’re investing in. Therefore, if you don’t pay back the loan according to the terms, you’ll forfeit the property to the lender for them to recoup their losses. 

Hard money rental loans are short-term non-conforming loans used solely to purchase commercial or investment properties. They don’t come from traditional lenders like mortgage lenders or banks. Instead, they’re offered by private hard money lenders that accept the property as collateral. 

Investors typically turn to hard money loans after having their mortgage application denied to avoid lengthy mortgage approval processes. Like a traditional mortgage loan, hard money loans are secured and guaranteed by the purchased property. However, hard money loans have less strict requirements and faster approval processes, unlike traditional mortgages. 

In addition, what makes hard money loans for rental properties different from other loans is that the approval doesn’t hinge upon a borrower’s creditworthiness. Instead, hard money lenders for rental properties use the value of the purchased property to determine whether or not to approve a borrower for the loan because if the borrower defaults on the loan, the lender can always sell the property. 

Hard money loan benefits

There are several benefits to using hard money loans for rental property.

  • Faster funding: These loans offer a faster loan application process and less stringent criteria to make it easier to get approved fast. Faster funding can help rental property investors stick to strict schedules and start renting units faster to allow faster time to profit. 
  • Flexible terms: Compared to traditional mortgages, hard money loans have more favorable and flexible terms. Since hard money lenders aren’t banks, you may have room to negotiate. For example, Source Capital looks at every loan application on a case-by-case basis to work with you to determine whether you’re eligible for the loan. In addition, by working on a more personal level with a lender, you may be able to negotiate repayment terms based on when you’ll be able to turn a profit on your rental property. 
  • Convenient: Hard money loans for rental properties are more convenient and less time-consuming than traditional mortgages. The application takes less time, and the underwriting process is much shorter. It can take months to close on a mortgage loan, but hard money loans typically close in a few weeks at most. 
  • Lower credit scores accepted: While hard money lenders look at credit scores to ensure borrowers will be able to repay the loan, credit scores are less of a factor. Instead, hard money loans are based on the value of the real estate deal. 
  • Collateral: The collateral for hard money loans for rental property is the property itself, but some lenders may be more flexible, allowing you to secure the loan using personal assets like residential properties. 
  • Little down payment: Many hard money loans for rentals require little to no down payment, focusing on the property’s value instead. However, the down payment requirement varies from lender to lender, and some lenders may require a higher down payment, depending on the value of the property. 
  • Higher loan amount: Rental properties aren’t cheap, and depending on your credit score, you may not qualify for a loan from a bank. Hard money lenders for rental properties offer loan amounts that are higher than traditional lenders, which can help you pay up to 100% of the property’s purchase price. 


All loans for rental properties have pros and cons. However, hard money loans are typically more attractive to investors because they have few disadvantages. 

The most significant disadvantage of a hard money loan for rental property is that they have higher interest rates than conventional loans because hard money lenders for rental properties take on more risk. Additionally, because they’re short-term loans, they have a shorter repayment period, so they’re typically best for investors who can make a quick profit. 

Hard money lenders for rental properties

Hard money lenders for rental properties approve the loan based on the property’s value, allowing the process to be faster than traditional loans so you can get your money in a few days instead of a few months. But, of course, this means more risk for the lender, so you can expect higher interest rates and shorter repayment periods. 

Ultimately, funding speed, interest rates, and loan terms vary between lenders and depend on the deal. Your particular needs will determine the type of terms you can expect, so you should do your research to find the best interest rates with each lender. 

When looking for a quality hard money lender, there are a few things to consider, including: 

  • Reliability: Unfortunately, anyone can call themselves a hard money lender if they have lending capital. Therefore, it’s important to do your research to determine whether you’re working with an individual or company you can trust. Review the online reviews of possible lenders to know what to expect. In addition, if you can contact someone who has worked with the lender before, you can learn about their positive or negative experiences. 
  • Speed of funding: Funding speed may be important, depending on your project. Some rental property purchasers need funding fast, depending on their project timelines. Hard money lenders will typically tell you how fast they can fund your loan once you’re approved, so feel free to ask them or search their websites for an answer. 
  • Interest rates: Loan interest rates vary depending on lender and loan type, so you’ll need to discuss potential rates with different companies or individuals to learn about your options. Since interest rates could impact the profitability of your project, they’re an important deciding factor.
  • Terms: Hard money lenders also have varying loan terms, with some offering longer terms than others. The best thing you can do is find a lender who will match your needs. Luckily, most lenders are flexible, so you can give them a call to discuss your needs and see if your terms are possible. 

Once you’ve found a hard money lender for your rental property purchase, you can typically apply online and get approved within 24 hours. Your loan will then be funded in a few days. 

Hard money loan requirements

Getting a hard money loan is much simpler than other types of rental property loans. Since lenders gauge the borrower’s potential to repay the loan in time, they’ll look at the property’s value and what it will rent for instead of other requirements. 

Hard money lenders must determine the deal’s profitability to approve you for the loan instead of focusing solely on the collateral and your credit history. Lenders will still vet you by reviewing your creditworthiness, but the most important part of the deal to them is the project. Since there are no requirements that are the same across lenders, most lenders look at each application individually to determine whether or not to approve a borrower for the loan. 

Applying for hard money loans

Hard money loans can be a better alternative to traditional mortgages if you want fast, flexible funding. Every hard money lender for rental properties is different, so it’s important to do your research to find the best one to suit your needs. 

Source Capital makes it easy to apply for a hard money loan. You can apply online in as little as ten minutes. Then, we’ll let you know if you’re approved within 24 hours, and you can expect your loan to be funded in a matter of days, not weeks. We offer fast approvals and have a proven track record of delivering on our promises. 

Wondering if a hard money loan is right for your next rental property purchase? Contact us today to learn about our loan offerings. We can help you determine if we’re the right partner for your next real estate investor.

Hard Money vs Private Lender Loans Explained

Hard money and private lending are two types of non-traditional loan options for borrowers that can’t get or don’t want to borrow from traditional lenders. A hard money lender is a professional lender that’s not a bank or credit union, and a private lender is someone who you know. 

Working with both types of lenders has its pros and cons. For example, a hard money loan tends to be more limited in scope than a private loan. However, if your need for a loan falls within the criteria for a hard money loan, you may prefer a hard money loan vs private lender financing. 

Both lenders have lower barriers to borrowing, but the payid deposit casino australia hard money lender is licensed and has to follow lending laws for its loan programs. In contrast, a private lender is under no obligation to follow lending laws.

You should always carefully consider the purpose of the loan along with the type of loan you’re interested in obtaining. 

The following is a look at a hard money loan vs private lender loans, and the kind of experience you’re likely to have when looking to obtain either type. 

Why is choosing hard money vs. private lender loans important?

As you look into hard money vs a private lender for funding, you won’t see a lot of difference between the two at first glance. Both have the same type of repayment terms and requirements set by the lender and function much the same way as a traditional loan. The major difference between the two types comes down to the entity that’s behind the lending.

A private lender is someone who lends money, but doesn’t have a license for organized lending. No laws expressly forbid people from loaning money, and a private lender can charge whatever interest they like on a loan. There are some benefits to private money vs hard money when it comes to getting a loan, but private lenders tend to be people you have a personal relationship with.

A hard money lender is licensed and therefore has to follow regulations that govern the lending of money. You gain access to consumer protection that doesn’t exist with a private money lender. As you look at a hard money lender vs a private lender, you’ll find the hard money lender offers fair and equitable loan products along with a professional distance to prevent hard feelings from taking hold. 

What is a hard money loan?

A hard money loan is a loan that uses an asset or assets to secure the loan as opposed to using a credit score for underwriting. 

The word ‘hard’ in this instance refers to the fact the loan is being funded with the backing of a “hard asset.” Most borrowers pledge their home or property as security, but other assets are sometimes considered. 

This type of loan is an alternative to traditional forms of lending due to the fact there’s a lower barrier to qualifying for funding and is usually quickly funded. 

Hard money loan pros

To help you figure out if a hard money loan is right for you, let’s look at some of its advantages.

Lenders are semi-institutional

Hard money lenders are organized in that they function similarly to traditional lenders. When you apply for a hard money loan, you speak to lending experts who guide you through the process and explain the lending terms to you.

Licensed for real estate lending

Most hard money loan borrowers are in the real estate construction industries. They need to borrow large sums against their properties, then repay the loan once the project is finished. Hard money lenders are licensed to lend money for this and related purposes. 

Loans close faster

A hard money loan doesn’t use the borrower’s credit score and income to underwrite the loan. Instead, it uses the value of the property that the borrower is pledging to secure the loan. That means less time is spent on determining the ability of the borrower to repay the loan, which results in faster funding. 

Hard money cons

Before applying for a hard money loan, you should also weigh the disadvantages and make sure it’s still the right fit for you.

Higher interest rates and fees

Hard money loans have a lower threshold for qualifying and a higher risk of default as a general rule. The lender charges higher origination fees and interest rates to hedge against a default by the borrower. 

Short repayment periods

A hard money loan is intended to provide a fast infusion of resources to buy an asset for short-term ownership. The repayment period can be as short as six months and as long as 12 months. Some hard money loans can last for as long as five years, but this is rare. In these cases, there has to be an understanding between the lender and borrower as to why this much time is needed for repayment. 

Limited to specific borrowing needs

The purpose of a hard money loan is to help a borrower gain access to financial resources that enable them to buy property fast, flip a house, start a construction project, or own valuable assets and have poor credit. It can also be used as a bridge loan to help a borrower make it through a period of time where they have no money coming in, but are guaranteed payment in the near future. 

Loans max out at around 80% of the value of the asset

You won’t be able to get 100% funding against the value of your asset, and you are required to provide a down payment. A hard money lender tends to loan no more than 80% of the value of the asset in order to preserve some of its equity. 

What is a private money loan?

A private lender is a standalone operation or an individual who is willing to loan money with typical repayment terms. That is, the lender isn’t affiliated with a bank or credit union. They lend money in the same way as a public entity, but a private lender is more likely to work with borrowers who have less than perfect credit. 

The major difference between private vs hard money lending comes down to the fact that a private lender is typically someone you know.

Private lender pros

As with a hard money loan, a private loan has advantages you should evaluate as you decide what kind of loan you want.

No credit check

A private lender usually relies on their trust in you and a handshake to underwrite the loan. They don’t run a credit check to determine your ability to repay. 

Doesn’t require collateral

One of the major differences between private money vs hard money lending is how private loans don’t require collateral. A private lender won’t ask for collateral to secure the loan, while the hard money lender is using the value of the property to lend to you. 

Easy to obtain

A private lender won’t ask you to fill out paperwork and sign on multiple lines to get the money you’re seeking. They may have a simple contract written out that outlines basic terms such as repayment and interest, but that’s about it. 

Private lender cons

Might not follow lending laws

A private lender isn’t beholden to federal lending laws. Therefore, they can put their own terms on the loan that you have to abide by, regardless of how fair or unfair they are. You’re under no obligation to take the money that’s offered, but if you’re out of other options, you’ll have to accept unfair terms. 

Are typically from someone you know

Friends and family are inclined to help each other out, but borrowing money from someone you know can lead to hard feelings if you fail to repay the loan. If you prefer to maintain your relationship and avoid the risk of something going wrong with your ability to pay the loan, don’t ask for help from a private lender. 

Might not negotiate a grace period for repayment

Private lenders are loaning money out of their own pocket. If your plans to repay don’t go as intended, your lender may not be willing to renegotiate payment terms. This can lead to a demand for payment of the loan in full and the potential for legal action by the private lender. 

The informal nature of getting a loan may harm you later

In the event the private lender doesn’t draw up a contract, you can be held liable for what you owe in court. The lack of a written contract or repayment terms means both of you have to keep track of the loan balance, interest paid, and how many payments were made. If one of you fails to keep track and a dispute occurs, the private lender can take you to court and ask a judge to settle the matter. 

How to decide which loan is right for you

Before you approach a private or hard money lender, you should identify the reason why you need funding. 

The hard money lender is an excellent resource for times when you need money fast to take advantage of a profitable opportunity, and you can’t get funding from a bank. 

A private loan involves asking someone you know, such as a family member or friend, for money. Going this route runs the risk of ruining your relationship with the lender and can open you up to unpleasant consequences. 

At Source Capital, we offer hard money loans to help borrowers get access to financial resources quickly and with the least amount of hassle. We’re here to help our clients get funding when they’re unable to get other forms of financing. Our loan experts take the time to explain how a hard money loan works, why it could be a good idea to get one, and help you find the right kind of loan. 

We’ve helped thousands of clients get a hard money loan, and we’re here to do the same for you. Check out our page of testimonials from satisfied clients to learn more about why you should choose us for your hard money lending needs.

Swing Loans Explained

Real estate transactions can be very expensive. That is why there are plenty of loan options available. One option is a swing loan, which is also referred to as a bridge loan. This is a loan that can be useful for certain people in some situations. Learn more about how a swing loan works below, and be sure to reach out to a real estate professional who can help you understand the benefits and drawbacks of each individual option.

What is a Swing Loan?

A swing loan, which is also called a bridge loan, is a specific type of loan that is frequently used to help you transition from one situation to another. Even though you may have to take out a loan to purchase the property, you may also need some extra funding to help with your moving expenses. Or, if you have to stay in another location in between your prior residence and your new one, you might incur some additional expenses. A swing loan is a short-term loan that can help with that.

A swing loan is a specific source of funding or capital that you can also use to cover your expenses until you secure permanent financing for your new home. Or, you may have an existing debt obligation that you need to take care of. In general, these are loans that will last approximately six months to one year; however, they can be customized to meet your needs, just like other types of loans.

It is true that most people would prefer to wait until their house is under contract before placing an offer on a new one; however, there are some situations where this might not be possible. Everyone is on a slightly different timeline, and waiting that long might not work for you. For example, there could be a situation where you need to move for work right now. Or, there could be family situations that require you to vacate your current house quickly to move somewhere else. With the market as hot as it is right now, you might believe that it is better to purchase a new property now and then sell your current one down the road. A bridge loan can help you with that.

If you aren’t able to sell your house quickly enough before you can purchase a new one, a swing loan can help you cover the expenses, providing you with the funds you need to move forward on the purchase of your new home before you can sell your current one.

A bridge loan can give you access to additional money that you can use to purchase property, allowing you to tap into an additional source of capital until your current home sells.

How Does a Swing Loan Work?

What is a bridge loan or swing loan? If you are in a tight spot, and you need to make a sudden change to where you live, then a swing loan can help you. Similar to other loans, the terms and conditions of a swing loan can vary significantly from person to person. You can customize the terms of the loan to meet your needs. 

In some situations, you might use a swing loan to pay off your current mortgage, while other types of swing loans are simply taken out in concurrence with your current mortgage. Furthermore, there are some situations where you might need to make a monthly payment on your swing loan, and there are other situations where you might not have to make a payment until you sell your current house.

In general, there are two separate categories of options to consider if you are interested in a swing loan. They include:

  • Second mortgage: You might be interested in using a swing loan to act as a second mortgage for a short amount of time. Essentially, you will use a swing loan to put a down payment on your new house without having to sell your current house first. This means that you might not have to make offers on new houses that are contingent on you selling your current one.
  • Pay off the first mortgage: You can use a bridge loan to pay off your current mortgage before using the remaining money to put down a new down payment on your next house. This means that you do not have two mortgages at the same time, as you can use your bridge loan to pay off the first one.

The exact terms and conditions will vary depending on the category of bridge loan you choose. Some of the most common terms and conditions of a bridge loan include:

  • The vast majority of bridge loans will last between six months and a year.
  • Most swing loans will be secured using your current house as collateral. That way, you can qualify for a lower interest rate on the loan.
  • In general, the interest rate on a swing loan will be slightly higher than the current prime rate.

As you go through the process of applying for a bridge loan, you will probably notice that the process is the same as applying for a mortgage. For example, your credit score, debt-to-income ratio, and your loan-to-value ratio will impact whether you will be approved for your swing loan. This means that if you do not have at least 20% equity in your current house, you may find it difficult to apply for a swing loan. That is why it is important to work with a trained professional who can walk you through the process and put you in the best position possible to be successful.

Swing Loan Advantages and Disadvantages

Before you decide if a swing loan is right for you, it is important to think about the benefits and drawbacks. There are a lot of benefits that come with applying for a swing loan. Some of the biggest benefits include:

  • The opportunity to purchase a new house before you sell your current one.
  • The freedom to make an offer on a house without having to place a sale contingency on any offer that you made. This can make it easier for you to get an offer accepted in a hot market.
  • Additional funds that you can use if you have to transition suddenly. It is particularly helpful if you have to move immediately for a job.
  • If there is a lot of uncertainty in your life right now, you can use a swing loan as a source of capital to make the process easier.
  • With certain swing loans, you may not have to make any monthly payments for the first few months.
  • Depending on your financial situation, you may be able to defer payments entirely until you sell your current property.

Because there are a lot of benefits that come with applying for a swing loan, they have become a popular option for certain people in some cases. However, it is important to think about the drawbacks of a swing loan as well. Some of the most important drawbacks that you should keep in mind include:

  • Typically, a swing loan has a higher interest rate than a conventional mortgage.
  • Because a lot of people use a swing loan in conjunction with another mortgage, it is virtually required for someone to have 20% equity in their current house before a lender will give them a swing loan.
  • In most cases, you can only get a swing loan if you are in the process of applying for a new mortgage.
  • With a swing loan, you may have to deal with two mortgages at the same time, which can be stressful for some people.
  • The financial burden can be a lot for some people to take on, and there are some people who may fall into foreclosure on their first property.

Because you are taking on additional debt by taking out a swing loan, it is critical to make sure that you are in a stable financial situation and can handle two large loans at the same time for a short while. It is important to understand that there are a few alternatives to consider as well. They include:

  • Taking out a home equity loan. You can borrow against the equity in your home, using it to cover your expenses or put a second down payment on a house.
  • Using a home equity line of credit. This could help you secure a better interest rate and lower closing costs, but you might face some prepayment fees if you decide to pay off your home equity line of credit early.
  • Consider a personal loan. You can secure this loan with other personal assets to get a lower interest rate, helping you avoid using your house as collateral, if you choose.

Because there are so many options on the table, it is important to work with a professional who can help you.

Source Capital Funding Can Help With Your Swing Loan

If you are looking for hard money borrowers who can help you with your bridge loan mortgage, we can help you. At Source Capital Funding, we provide you with access to a hard money broker who can provide a wide variety of loans, including fix and flip loans. A residential hard money lender can help you get through difficult times, so contact us today to speak to a member of our team.

Can a Trust Get a Mortgage or Loan? Yes and No

You can use a trust to get a loan or mortgage, but there are many caveats and contingencies. Some trusts allow the estate holder to make changes to the trust while still alive. In other cases, getting a mortgage with a trust fund requires the trustees to work with other beneficiaries after the estate holder passes away.

Yes and No

The answer to the overarching question of, “Can a trust get a mortgage?” or “Can a trust get a loan?” is yes and no. The answer depends on the type of trust obtained.

A trust is a financial arrangement that gives a third party the right to hold assets on behalf of beneficiaries. A trust can be arranged in a variety of ways, so it is important to know which method will work best for the beneficiaries in the long run.

To ensure the benefit of all involved in a trust decision, it is important to know the types of trust and benefits of each. Some types of trusts allow for the trust to obtain loans and mortgages, some types must follow specific situations, and others do not allow a mortgage or loan.

When choosing to get a trust, it is important to know all the facts. Most trusts, when dealing with obtaining a loan or mortgage based on that trust, fall into two categories: living or revocable trusts and irrevocable trusts.

Living or Revocable Trust

A revocable trust, or living trust, helps assets left to beneficiaries pass without the hassles of probate. This type of trust also allows the grantor to have control of the assets while still living. You can change or dissolve a revocable trust at any time. One thing to remember, however, is that a revocable trust traditionally becomes irrevocable when the grantor passes away.

When you name yourself the trustee, you can retain control over the trust. You can name a co-trustee to manage your trust once you pass away or are incapable of making financial decisions. While a revocable trust can avoid probate, it will still be taxed under estate tax laws. This simply means that it will be treated just as your other assets are during your lifetime.

Irrevocable Trust

An irrevocable trust means that the trust is not flexible or changeable. In fact, this type of trust requires a court order or beneficiary approval to change any aspect of the trust. Once your assets become part of an irrevocable trust, you can no longer access them freely. Therefore, any edits or changes require an agreement signed by a judge or by the trustee and each of the beneficiaries.

These trusts aren’t as popular due to their lack of flexibility. Most often, very wealthy people use them to reduce costly estate taxes. Once you transfer assets to the trust, they are no longer part of the taxable estate.

A living or revocable trust can get a loan or mortgage from a bank, credit union, or other organizations that provide loans to entities. However, a trust can only obtain a loan or mortgage this way if the original trustee is still alive. Traditional lenders, such as banks and credit unions, will not give loans or mortgages to irrevocable trusts. Therefore, before a loan is given, the lenders require moving the trust to a revocable trust.

Pros and Cons

As with many situations, you need to weigh the pros and cons of gaining a loan or getting a trust mortgage. Some of the advantages and disadvantages are listed below.


  • You can pay trust expenses. Generally, when the original trustee dies, there are expenses left to pay. These expenses can include medical bills, mortgages, and legal fees. Unfortunately, items bequeathed to other heirs may require immediate processing. If there are not enough liquid assets to take care of these financial obligations, a trust loan or a hard real estate loan can help provide money immediately to pay these obligations as soon as possible. Keep in mind that a hard money loan interest rate is generally higher than other interest rates.
  • You can buy out other heirs. If the trust assets include a home, having more than one heir can make it difficult to make a decision on what to do with that home. One may want to sell, and one may want to live in the home. This difference in opinion can create a very stressful situation. Fortunately, a trust mortgage can accommodate the goals of both parties.
  • You can avoid reassessments for property tax. A property that stays in one family for many years has a lower yearly increase in property taxes. When that property sells or goes to another family, the taxes can increase dramatically. Borrowing against the trust avoids person-to-person transfers and the accompanying increase in property taxes.
  • You can ready the home to rent or sell. If all the heirs agree to sell or rent the home, you can use a trust loan to update the property or make any repairs required to make the home ready for rent or sale. This keeps the expenses from coming directly out of the heirs’ personal funds.


  • Loans cost money. Loans, no matter the type, have interest rates and fees to arrange them. Ask questions of the lender to ensure you understand what is involved over the entire course of the loan. You don’t want to be surprised by unknown fees and have to pay for things you hadn’t anticipated. There are also legal expenses involved, so make sure you weigh all the costs against the benefits of the loan.
  • There are always risks to consider. Be certain you think of and account for any risks that may arise with the loan or mortgage. Create a plan that looks at all the risks and has mitigating actions to reduce that risk or to find a way to pay if things go wrong.

Buy a House Through a Trust

Buying a house through a trust is a good option because it protects the property owner’s identity, allows multiple people to buy a property together without being taxed, and helps with estate planning. 

Getting a mortgage with a trust fund is generally a short-term loan and is used to help make the distribution of money and assets equal among all the beneficiaries. These are usually amortization loans.

Frequently Asked Questions on Trusts

Many people have questions when it comes to fully understand how a trust works. Always ensure you understand how the trust works before making any moves. Ideally, ask for legal advice before making any decisions that affect the trust.

Can a trust lend money?

Before making any decisions about lending money to one beneficiary, make sure you are not favoring one over another. Trustees are allowed to make loans to beneficiaries of the trust but should always make sure the terms of the trust allow this process. This process allows you to become a hard money lender when the beneficiaries need money quickly to take care of expenses from the loss of the original trustee.

Can a trust get a mortgage?

A trust can get a mortgage if the trust is from a revocable trust and if the mortgage is being sought from a traditional lender. However, it’s a good idea to make sure all beneficiaries are in sync with how the loan will impact their inheritances.

Can a trust buy a house?

You can buy a home or property with a trust. This means you don’t own the home but rather the trust does. However, as the trustee, you will have significant control over what happens to the property in the event of your death.

Why would I want to borrow against a trust?

Borrowing against a trust will help you pay the fees and other outstanding bills that may still be owed by the original trustee. This can also help you settle funds that are owed to other heirs as well. It makes it easier to handle the financial part of being a trustee instead of it coming directly from your pocket.

What is a real estate lender?

A lender in real estate is someone who loans the money from a financial institution.

Final Notes

Being a trustee is not an easy job when there are multiple heirs and complex situations to deal with. Being knowledgeable about what kind of loans and mortgages you can acquire through a trust can help alleviate the financial obligations and stress that come with being a trustee. Source Capital can help you make all of the decisions you need to make as a trustee. Our experts can help you make the best decisions when it comes to getting a trust loan or trust mortgage.

Types of Loans for Investment Property

Real estate fills an important role in many investment portfolios. It can be a useful hedge against inflation, and there are many tax incentives for investing in real property. And, more than most other investments, real estate offers opportunities to leverage investment with investment property loans.

Some investors will buy and hold land for future development. Others prefer to fix and flip, realizing the potential in previously neglected properties.

There are investors who will buy a home for an elderly relative, enjoying appreciation when they eventually sell the property. Others invest in rental properties to secure a passive income stream that lasts for years, or even decades.

But there is a significant downside to investing in real estate. Although it is possible to buy shares in real estate investment trusts, owning a property outright, using all of your investment acumen and taking full advantage of a rising market, requires a major investment of capital.

Most real estate investors don‘t finance their purchases entirely with their own funds. They rely on investment property loans.

There are three major kinds of loans for investing in real estate. There are hard money loans (often known as fix and flip loans), bank secured loans (including home equity loans), and private money loans. We will mention some other kinds of funding briefly.

We will discuss each of these types of loans in detail. But first, let’s review the definition of an investment property.

What Is An Investment Property?

Investment property is real estate purchased with the intent of realizing a gain on its future sale, a stream of rental income, or both. Individuals, partnerships, and corporations may own investment properties.

The definition of an investment property is straightforward except in the case of second homes.

It’s important to understand that your investment property is not a second home.

The IRS rule is that for a property to be your second home, you must live in it at least 14 days a year. Also, you must live in it at least 10 percent as many days as you rent it out.

Here are some examples of how that works:

  • If you use a property for just one week in the summer (7 days), and you rent it out for a month, it is not your second home. The reason for this is that you did not stay in it for 14 days.
  • If you spend the whole month of July (31 days) in your mountain cabin, and you rent it out for August and then close it up for the winter, it can be treated as a second home. You are staying in for more than 14 days and for more than 10 percent of the total days you rent it out.
  • If you stay in your beachside condo for 30 days every summer, and offer it on AirBnB the other 335 days of the year, it is not a second home. That’s because you do not stay in it 10 percent as many days as you rent it out.

Why does this definition make a difference?

  • You have to report rental income on your federal income tax return, unless you are renting out a second home for less than 15 days a year.
  • You can deduct at least part of your maintenance expenses from your rental income. You prorate the deduction. For instance, if you live in the property 25 percent of the time and you rent it out 75 percent of the time, you can deduct 75 percent of your maintenance expenses from your rental income on your tax return.
  • You can’t deduct home mortgage interest on a second home, but you can deduct home mortgage interest on an investment property. You can also take depreciation on an investment property, although you can’t take depreciation on your investment property. You have to recapture depreciation on your investment property when you sell it, but it’s recaptured at (lower) capital gains rates and written off at (higher) income tax rates.

There are also major differences in financing a second home and financing an investment property.

You can get a VA loan for a second home. You can’t get a VA loan for investment property (although you can convert it after you have lived there).

You will usually have to pay 20 percent down to get a mortgage on a second home. Lenders usually require 30 percent down to get a loan on investment property.

Future rental income doesn’t figure into your creditworthiness for a loan for either a second home or an investment property. Banks usually look at how easily you can make the payments on an investment property from your other income, and they expect higher credit scores and better credit history before they make a loan.

But you don’t necessarily have to get your funding for an investment property from a bank.

Securing Funding For An Investment Property

There are several types of loans for investment properties. Different kinds of loans have different lending criteria. Choosing the right kind of financing makes a huge difference in the profitability of your investment, so it is important to keep these basic principles in mind:

  • You can finance an investment property with the equity in your home.
  • You can use a gift of funds to make a downpayment, but it has to be documented as a gift.
  • It’s not unusual to borrow money to fix and flip distressed properties. You are probably aware of this practice as flipping.
  • Hard money loans close faster and have looser lending requirements than conventional loans. It is often possible to close a hard money loan in just a few days. This allows you to take advantage of competitive opportunities in the real estate market. You can’t get hard money loans at banks.

Hard Money Loans

If you are looking to fix and flip, a hard money loan may be your best option.

Hard-money loans are short-term loans. They are designed to give you the capital to rehabilitate real estate so you can get it on the market for a profit.

Both residential hard-money lenders and commercial hard-money lenders make loans come due in two to 12 months. They are easier to get than conventional bank financing, but they also come at a higher interest rate. Your experience with the lender will affect your rate. 

Hard-money borrowers need to understand that hard-money loans don’t finance 100 percent of the cost of your fix and flip. There are two different ratios that hard money lenders use to calculate how much money they will lend on your project, LTV and ARV.

LTV, or loan to value, is used to make a loan for a percentage of the current value of the property you want to fix and flip. The LTV is usually 65 to 80 percent of current value.

ARV, or after repair value, is used to make a loan for the appraised value of the property after you have renovated it. The ARV is usually 70 percent of the appraised value.

Lending rules for hard-money loans vary from state to state.Source Capital is a premier source of information about the hard-money loans that may be available to you where you live.

Bank Secured Loans

A bank-secured loan is a loan secured by property you already have. It’s not a loan on the property you intend to buy as an investment.

For instance, a bank might be willing to lend you the money you need to buy an investment property with your equity in your home as collateral. Or it might secure your loan with another property you already own.

If you don’t make your payments on your investment property loan, the bank may take the property you put up as collateral. More often, however, you can work out refinancing at a higher interest rate, at least once or twice, although this is not guaranteed.

As we mentioned earlier, bank secured loans don’t cover the entire purchase price of your investment property. You will probably still have to come up with a down payment of 30 percent. You will also need to be able to show the bank that you can make your payments without any income from your investment.

Private Money Loans

Private money loans are exactly what they sound like. They are (usually) unregulated loans from private individuals to investors that are negotiated without following the rules that apply to banks.

Banks are required to take care to lend only to those individuals they are reasonably sure can pay them back. Private lenders may take risks that other lenders will not. But they usually charge considerably more interest, and they always have an exit strategy. Your private lender may sell you a loan to another investor for aggressive enforcement of its terms.

It’s important to know who you are dealing with. You don’t want your project to collapse because your private lender provides enough money to start your project, but not enough to finish it.

Other Kinds of Funding

Some real estate investors get their financing through crowd funding. Crowdfunding sites, however, usually do not provide 100 percent of financing.

A few investors are able to finance their projects through unsecured lines of credit, but the interest rates on this kind of financing take a considerable bite out of profits. Lines of credit are completely inappropriate for buying long-term investments.

What type of loan is best for investment property? Let’s take a closer look at some frequently asked questions.

Types Of Loans For Investment Property: FAQ

Is it harder to get a mortgage for an investment property?

It’s considerably harder to get a mortgage for an investment property than it is to get a mortgage for a residential property. Most lenders want rock-solid documentation of your income, and expect you to have held your current job for at least two years. They will also look for evidence that your income exceeds your expenses, and a high credit score.

It can be tempting to try to get a second-home loan for your investment property. Don’t do this. If your lender finds out that you misrepresented your intentions in getting your loan, you may be found to be in default.

Can you use a conventional loan to buy an investment property?

You can get conventional bank financing for investment properties, but you will have a higher down payment and have to meet stricter qualifications.

How much will the bank lend me for an investment property?

If you qualify for a bank loan, you are most likely to be approved for 70 percent of the purchase price. If you are looking to fix and flip, a bank loan may not be the best type of loan for investment property.

Final Thoughts

Looking for investment funding in California, Minnesota, Arizona, or Texas? Source Capital can give you an answer in minutes! Call us at (888) 250-6794 or apply now!