Can I Use A Short Term Loan To Buy A House?
For a lot of people, owning a home is a dream they want to come true. So they work hard to achieve this goal for themselves and their loved ones. There are different ways to achieve the goal of buying a house, but is it possible to use a short term loan to buy a house?
What Is A Short Term Loan?
Personal loans come in different forms, and one of them is a short term loan. As the name suggests, a short term loan is a type of credit with small amounts and paid within two weeks up to a year. People usually take out a loan- short term to handle emergency expenses. In the case of payday loans, borrowers usually have two weeks to a month to repay the debt. Short term loans may be repaid over several months to a year. Different lenders may call these loan products by different names, such as:
- Bridge loan
- Fast cash
- Cash advance
- Cash loan
- Payday loan
- Quick cash
- Small loan
Before taking out a short term loan, you should find out the requirements of the lender. The minimum requirements in Australia usually include:
- The age of the borrower: You should not be younger than 18
- Proof of identification: You must have a valid identification card showing your address
- Proof of income: Your financial records, particularly, your bank statements and recent payslips may be requested by the loan provider
- Credit standing: Your credit score matters whether you are seeking a loan from a bank or non-traditional lender. Online lenders with good review will still accommodate loan applicants with bad or zero credit as long as they can prove they are capable of paying the bank the money they borrowed.
What Are The Purposes Of Short Term Loans?
The very nature of short term loans makes them suitable for handling cash shortages that you can pay off within a short period. For example, it can be used to pay for emergency medical bills if someone in the family was hospitalised due to a sudden illness. It is also used by many borrowers to pay for unexpected repair expenses – the roof is leaking, car broke down, etc. The loan will be paid off from two weeks up to one year, depending on your arrangement with the loan provider. But can you use a short term loan to buy a house? The answer is yes and no.
Reasons A Short Term Loans or Credit Cannot Be Used to Buy A House
Tired of renting and think it’s time to buy a house? Can a small, short term financing help you buy a property? Here are the reasons why it’s not advisable to buy a house using a short term loan:
- The nature of short term loans makes them uni deal for buying something with that price. Short term loans, on average, have loan amounts up to $2,000.
- Even if the loan applicant was granted a very big amount, the higher interest rates associated with short term financing can cripple a borrower who has to pay off the loan in a short period.
The standard practice in borrowing money to purchase a property is through a mortgage. A responsible loan provider will advise against taking a loan- short term to finance the purchase of a house.
Ways To Use A Loan- Short Term Amount If You Want To Own A Home
If you are adamant on taking out a short term loan to buy the house that you want, here are possible ways to use the money correctly:
- To pay for down payment: You may need to look for low-cost housing to use a short term loan amount for the down payment. If you have a reliable source of income but need additional cash to jump start the home loan for a while, you can use a loan term- short to buy a house. However, repeatedly taking out a loan- short term to remit mortgage payments is not the best option.
- To move from one house to a new one: Some people take out bridge loans to obtain financing while transitioning from an existing home to a new property. Bridge loans usually have terms of six months at a minimum, up to 3 years. A home equity loan, however, is the best alternative to bridge loans because of the longer terms, usually 5 up to 20 years. Borrowers with little equity on their home may turn to bridge loans, but keep in mind that these types of loans are not substitutes for regular mortgages.
- To capitalise on time-sensitive property investment: When you are still awaiting the results of a regular bank loan, you may use short term financing to settle urgent fees to lock in the deal.
- To obtain funding when you have bad credit: People with poor credit will find it difficult to obtain a mortgage or a long-term personal loan to finance their goal of buying a house. This is, however, very risky since it can lead to huge financial problems if you are unable to settle your short-term loan.
Get a Short-term Cash Loan and other Options
It should be reiterated that short term loans are not ideal for financing a house, whether to buy a pre-built home or to obtain funds to build a house from the ground up. Take time to look at other options like government grants, housing programs from your company, or through a home equity loan. The first thing to do is ask yourself whether you are financially ready to buy a house. The huge financial responsibility can become overwhelming for overly zealous first-time home buyers.
Short Term Loans Offer Quick Financial Relief, Not Long-Term Solutions
As discussed earlier, short term financing is best used for bridging gaps in your income. They are not designed to solve long-term financial troubles. If you are dependent on short term loans, you may need to assess and change your spending habits. Do you want to take out a loan to buy a house? A responsible loan provider like Magic Loan offers only the most suitable loan options for borrowers – reach out to us today.