Real Estate Bridge Loans
A real estate bridge loan is a type of loan used for short-term financing until a borrower can secure permanent financing or sell the property being used as collateral for the bridge loan. Bridge loan financing typically has a term from one month to 11 months. North Coast Financial is able to provide funding for bridge loans on investment property within a matter of days.
A real estate bridge loan may also be called a bridging loan, bridge financing, gap financing, interim financing or a swing loan.
Residential Bridge Loans – Residential Bridge Loan Lenders
A residential bridge loan is a popular way for real estate investors and property owners (homeowners) to borrow against their existing residential property in order to purchase a new property. In many cases a property owner wishes to purchase a new property but doesn’t have the necessary liquid funds for a down payment. The property owner could sell their current property and use the proceeds from the sale for the down payment, but they would then have to find temporary housing until the purchase of their new property is complete. This logistical hassle of moving twice can be avoided with bridge loan financing from a residential bridge loan lender.
With a residential bridge loan, the property owner is able to pull equity from their existing property to raise a down payment for the purchase of a new property. Once the new property is acquired, the original property is sold in order to pay off the residential bridge loan.
Residential bridge loan lenders are less concerned with the credit worthiness of the borrower since the bridge loan is secured by the equity in the borrower’s property. This is beneficial for borrowers who may currently have less than ideal credit or issues on their record but have sufficient equity in their property.
Residential bridge loan lenders are able to provide funding very quickly as the source of the funds is private money as opposed to an institutional lender.
Bridge Loan Rates
Bridge loan rates from hard money lenders are higher than traditional institution loans due to the increased risk. Bridge loan rates will vary from lender to lender, but will generally be in the range of 9-12% interest for hard money bridge loans depending on various factors of the specific bridge loan scenario.
While the bridge loan rates from a hard money lender will be higher, the borrower will be able to receive funding within a week or two (compared to over a month from a traditional lender). The likelihood of the bridge loan being approved by a hard money lender is much higher as they do not have the same stringent lending requirements as banks.
Loan to Value Ratios (LTV) and Loan Amounts for Bridge Loans
Bridge loans from hard money lenders have lower loan to value ratios (LTV) than traditional mortgages obtained from banks. The bridge loan lender will generally allow for a loan to value ratio up to 70-75%. This is to ensure the borrower has enough equity in the property to protect the lender from a default. Loan amounts available for a residential bridge loan can range from a relatively small amount of $20,000 to a jumbo bridge loan in the millions of dollars. The borrower may sell the property or arrange other long-term financing in order to pay off the bridge loan.
Read More: What is a bridge loan?
Commercial Bridge Loans – Commercial Mortgage Bridge Loans
Commercial bridge loans are available for commercial property owners who wish to borrow against their existing real estate to fund a down payment for the purchase of new commercial property. This is often done when a real estate owner is currently lacking sufficient liquidity but has plenty of equity to borrow against. Once the new commercial property is purchased, the borrower can then sell their original property in order to pay off the short term commercial bridge loan.
Commercial mortgage bridge loans are for short term use and usually written for no longer than 11 months. Commercial bridge loans generally have a lower loan to value ratio (LTV) than residential bridge loans and the commercial bridge loan lenders may require additional information and documentation as commercial loans are typically more complex than residential.
Bridge Loan Example
An example of a traditional bridge loan would be when an investor owns a property and wishes to purchase a new property. The investor doesn’t have sufficient funds to purchase the new property but needs to secure the new property before selling the existing property. The investor is able to use bridge loan financing to borrower against the property they already own to raise funds for the purchase of the new property.
Once the new property is purchased, the investor can sell their original property and pay off the bridge loan. The bridge loan “bridges the gap” between the purchase of the new property and the sale of the existing property.
North Coast Financial is an experienced hard money bridge loan lender. Contact us now to see how we can help you with your real estate financing needs.