Bridge Loans

Bridge loans help home buyers purchase another property before they sell their existing home. These short-term loans secure financing when buyers need it most by offering immediate cash flow.

With up to one year terms, bridge loans usually operate on interest and some form of collateral, such as real estate.

“Bridge loans are also known as interim financing, gap financing, and swing loans.”

What are bridge loans?

You’re looking to buy a new home, but first, you have to do the following:

 

  • Sell your current home
  • Financing needs to make a down payment on your new house as you wait for the bank to process your mortgage
  • Acquire cash to fix and rent your property

 

It can be tough to find a new home when you feel like your old one is holding you back. This is especially true for fix and flippers. If your former fix-and-flip property hasn’t sold yet, don’t stress; there’s an easy solution: a Bridge Loan.

Bridge loans are temporary loans to bridge the gap between purchasing a new house and selling the old one.

Who are bridge loans best suited for?

Bridge loans are great for fix-and-flippers looking for a way to expedite the buying and selling process. By choosing this type of loan, you can secure your bid on a new property and have time to work out a more permanent financing solution.

Typically, bridge loans are a good choice for you if you have:

 

  • Excellent credit
  • Low debt-to-income ratio

 

However, this may not be the best option for you if you are unable to qualify for owning two homes. Otherwise, bridge loans are a great way to get the financing you need fast.

Benefits and Drawbacks of Bridge Loans

A bridge loan can be beneficial for several reasons, including:

  • 1. Allow you to easily and quickly purchase a new property
  • 2. Possibility of a few months of free payment
  • 3. Can put your old property on the market faster, without restrictions
  • 4. Can be customized to fit your specific needs
  • 5. Gives you time to find the best deal on your old home
  • 6. Facilitates a better cash flow position in case of commercial buyers as you arrange long-term financing
  • 7. Don’t have to wait for your traditional mortgage to come through
  • 8. Enables you to buy a new home before selling your old one

Drawbacks may include:

  • 1. Comes with a higher interest rate and fees
  • 2. You have to qualify to own two homes
  • 3. Certain lenders penalize you for prepayment of the loan
  • 4. There is uncertainty whether you will be able to sell your old house before the term of the bridge loan is up
  • 5. Risk for high financial burden from taking two mortgages and the interest on the bridge loan

“Maintain a healthy cash flow with bridge loans.”

What do these loans include?

A
The interest rate and terms of a bridge loan vary depending on the sales price of your new home and mortgage.
B
They usually come with a 2% market rate premium as they are short-term and higher risk. They typically last from 6-12 months.
C
Repayment terms on a bridge loan vary depending on the structure of the investment and your credit.

LTV

The LTV (loan-to-value) ratio depends on your new mortgage risk. Lenders typically finance up to 80% of your property value.

Here are typical fees associated with bridge loans:

 

  • Administration fee: Covers the administrative cost of processing your loan.
  • Origination fee: Cost you have to pay your lender for handling your loan application. It is usually 1 percent of the total loan amount.
  • Appraisal fee: This is the fee paid to a professional appraiser to value your home and determine its market value.
  • Escrow fee: Fee paid to a third party to safeguard the asset and act as the middleman who referees the transaction ensuring both parties fulfill their part of the agreement.
  • Wiring fee: The cost associated with making any wire transfers.
  • Title fee: It is a one-time insurance premium you pay at the time of change of title of property.
  • Notary fee: Charges paid to a notary for verifying the identities of the persons signing the agreement.

Balloon Payments

Say you have taken a bridge loan to finance your residential property, and you sell off your home before the loan term lapses. In this case, the lender may not need you to make the remaining payments after you sell the house. Instead, the lender may require you to make a balloon payment to close out the loan.

Balloon Payment – A large payment due at the end of a balloon loan, which is a short-term loan such as a bridge loan. Since these loans are short-term, only a portion of the principal loan balance is amortized over that small period of time. The remaining balance is due at the end of the term.

How to Apply For Bridge Loans

If you have any questions or concerns, simply call one of our bridge loan experts at Gauntlet Funding at 917-903-3331. Once your questions are answered, we can help you get started with financing.

To apply for a bridge loan, simply fill out our easy online application. Then, one of our hard money lending experts will contact you shortly.