As a real estate investor, you have probably been contemplating various mortgage options if you’ve located the new property you want to purchase. In addition to the various choices that encompass fixed-rates and adjustable-rate loans, there is also something called a bridge loan, which many individuals in the hard money lending industry use. While you may have heard this term in passing, do you know exactly what it entails? If not, that’s perfectly OK! Read on to get a better understanding of this flexible and useful financing option that can be used for fix and flips, small business, and residential purposes.
A bridge loan is a short-term funding program that is used as a stopgap by an individual or entity until they secure long-term funding or pay off a pre-existing debt. It enables the borrower to satisfy current financial obligations by offering them an immediately accessible cashflow. Bridge loans are typically structured up to one year in length and have relatively higher than average interest rates compared to conventional loans. That is because the lending entity plans on the loan only being extended for a short period of time. In most cases, bridge loans are backed by some type of collateral including real estate or another asset.
Bridge loans are sometimes referred to as interim financing or swing loans, as they are implemented to literally bridge the period between when financing is required but not yet practicably attainable. This type of financing is used by both companies and individuals, and Gauntlet Funding has the professional and practical experience to specifically customize these loans for a variety of different scenarios to meet all your unique needs.
Bridge loans can be used to assist homeowners to buy a new residential property while they are waiting for their current home to be purchased. Borrowers utilize their accrued equity to cover the down payment for the new property while the current home is still active on the market. This provides the homeowner with extra time—a valuable commodity when it comes to buying and selling real estate in a considerably volatile market. Bridge loans are also commonly implemented in the real estate investment sector. If an investor has a lag between the acquisition of one property and the sale of another project, they may use a bridge loan as a source of liquidity.
The key benefit of using a bridge loan is that it enables you to place a contingency-free offer on a property, which might be your only chance of having your offer considered by the seller—especially in competitive marketplaces where you are contending with multiple fix-and-flip investors or motivated homebuyers. It also offers a considerable degree of convenience if your family has to move on short notice, such as for job relocation. If you put your house on the market and it sells quickly before you have the chance to purchase your next residence with conventional financing, you may have to move into expensive and cramped temporary housing. Bridge loans allow you to buy that second home without waiting for financing so you can avoid this unfortunate scenario.
Typically, bridge loans have an expedited application and approval process and the funds are disbursed more quickly compared to conventional financing methods. Although bridge loans carry shorter funding windows, higher interest rates, and bigger origination fees, borrowers realize that this is an acceptable trade-off for fast, convenient access to capital. In essence, they justify the higher interest rates because they are aware that the loan is short-term and plan accordingly to pay it off with low-interest, long-term funding before these added expenditures negatively impact their budget.
As with any financing option, there is really no right or wrong answer as to if a bridge loan is ideal for you—it is all dependent on your unique financial status, living situation, the economic environment, and a host of other variables. Get in touch with the experts at Gauntlet Funding today to explore your financing options!
How Bridge Loans Can Secure Your Next Investment Opportunity | Gauntlet Funding – Melville, NY