Bridge Loan

When you are contemplating purchasing a new property, whether it is a residential, a commercial, or an investment property, you are probably researching several different types of financing options. If you already have enough funds available for the purchase, and you don’t have any existing properties that you have to worry about liquidating to get the funds, then the financing will go relatively smooth. However, if you are planning on selling a property to get the equity before or after purchasing a new property, then things can get complicated if you are not prepared.

A commonly used financing option is a bridge loan. A bridge loan, commonly referred to as a swing loan, is a relatively short-term financing option for new purchases. Basically, a Bridge Loan helps finance a new purchase by providing money to help "bridge" the time gap before a previous property sells, and permanent financing can be obtained for the new purchase. Bridge loans are paid off when the existing property is sold.

Bridge loans can be used for a variety of real estate transactions, from residential properties to commercial properties. Bridge Loans are commonly used to acquire new properties, cash out on current equity, buy-out, purchase a foreclosure, and for new construction. Generally, to obtain a bridge loan on any new purchase, you must have a contract to sell on your existing property. If not, then a bridge loan may not be the most appropriate financing option for your needs. Bridge Loans let you purchase property almost immediately, without having to wait for another property to sell. They give you the needed time for your current property to sell, while still allowing you to purchase the new property almost immediately. If your property is taking longer to sell than originally planned, a bridge loan is there to help close the gap to allow you to make a new purchase without having to lose the chance. A bridge loan can be useful if you are relocating, and trying to handle selling your home when you still need to buy another immediately.

Need a Business Cash Advance? Call 877-749-5731

Bridge Loans are considered to be a short-term financing option for purchasing new properties. They are quick to obtain, and quick to expire. While permanent financing can vary from fifteen year loans all the way to forty-five year loans, and are usually obtained for thirty year terms, bridge loans are usually for only two weeks to maybe about three years. They are not intended to be the permanent financing option; that is why the duration is so short. Bridge Loans only provide a window of time agreed upon by the borrower and the lender to obtain acceptable, permanent financing. The speed is a bridge loan’s biggest attraction.

If you find yourself in a situation where you are currently unsure of how long it will take to sell your current property, lenders have a solution for that. Usually the length of the bridge loan lasts for either the term stated, or when the sale of the property is official and permanent financing is obtained, whichever comes first. It is very common for lenders to use an appraisal and information provided by a realtor or other agent to help them determine if the term of the bridge loan is appropriate for your situation. Since a bridge loan expires in such a short amount of time, it is fairly possible that you could end up with the bridge loan due, and no permanent financing to cover the cost. However, if you research the term lengths and speak with an experienced lender, you will not get caught without any financing. Do be certain that you are getting the best terms possible on your loans by working with an experienced, reputable and competent lender.

The duration of a bridge loan is appropriate for a quick purchase. It provides the buyer room for negotiation when purchasing a new property and it allows some time to obtain permanent financing. If you know when your sale will close, or if you know when you will obtain permanent financing, then the duration of a bridge loan will be a given. However, if your current property has been on the market for a while, or you are still fishing around for a lender for a thirty year term, then the duration of the bridge loan will be figured out by the professionals.

Need a Business Cash Advance? Call 877-749-5731

When it comes to residential property, a Bridge Loan is ideal for current homeowners who are purchasing a new home. If your home is currently on the market, and you have a contract for sale, then a bridge loan provides immediate funds for the purchase of your next home. Bridge loan financing is obtained by using the equity in your current home that is for sale. Once the home sells, then the bridge loan is paid in full.

Bridge loans for residential properties usually have a shorter duration of only a few weeks to a few short months. The amount is usually a lot smaller than commercial property bridge loans, as well. A bridge loan for a residential property provides the convenience of being able to purchase another home without immediately selling your current home. It gives you the piece of mind of knowing that you will not lose the opportunity to purchase a home that you are interested in because your current home isn’t sold yet.

If your current home hasn’t been sold in the originally anticipated time frame, a residential bridge loan is a great option. A residential bridge loan allows you to close on your new home without having to worry frantically about your current home. Bridge Loans are also commonly used for the construction of a new home.

The length of a bridge loan also provides you with an adequate amount of time to obtain permanent financing for your new home, as well. Usually, however, permanent financing is obtained, and a Bridge Loan is used as a contingency if your current home hasn’t sold yet. Once your current home sells, the bridge loan expires and the permanent financing begins.

Need a Business Cash Advance? Call 877-749-5731

Builders, developers, contractors, and even investors frequently use Bridge Loans to fund their projects. Bridge loans provide an immediate source of funds for a property transfer that has a quick deadline. With time being of the essence, bridge loans are sometimes an essential aspect of financing for closing the deal so no money, or time, is lost.

Bridge loans also provide the time that may be necessary to address any problems that may arise while trying to obtain permanent financing. Since there are so many aspects involved in commercial and investment properties, such as getting the permits, doing needed planning, or finishing any evaluations or approvals, a bridge loan helps to cover carrying costs and begin the projects without having it impact overall funds or cost any additional time.

Builders, developers, and contractors frequently use bridge loans as a quick source of funding as well when they are refinancing a loan that is about to mature. The Bridge Loan allows them to pay off the old loan at the maturity date, and gives them the opportunity to look for a lender to refinance the property. A bridge loan is a great solution for businesses when it comes to quick financing.

Need a Business Cash Advance? Call 877-749-5731

Interest rates for Bridge Loans are considerably higher than the average rates. In addition to the higher rate, lenders are very selective when it comes to financing a bridge loan. They usually have a long list of eligibility requirements, including an immaculate credit score. If you are unable to meet their eligibility requirements, the interest rate for a bridge loan will be that much higher than the standard.

Although the rate is extremely high in comparison to other options, the interest payments really will not be too much considering the duration. Since a bridge loan is only temporary, the rate needs to be higher. Also, the short duration means fewer payments at that interest rate. Once the permanent financing pays the bridge loan off, then your interest rate will drop down to roughly the national average.

Bridge loan interest rates are usually as high as two points above the national average. However, there are other factors that determine your final rate. If you are borrowing only a small sum of money, or you have exceptional credit, then the rate will be somewhat lower. If you are in need of a large amount of money, or you are a credit risk, then the rate will be substantially higher. As with all loans, there is no upfront guarantee on an interest rate for a bridge loan. Short term loans do mean higher interest rates; however, a bridge loan may make your residential move easier or your commercial property purchase possible.

Need a Business Cash Advance? Call 877-749-5731

Since interest rates for bridge loans are relatively high, it is considered better to pay that higher interest rate than pay for points on the short-term bridge loan. However, sometimes borrowers still have to pay points associated with a bridge loan. Generally, the closing costs for a bridge loan are almost equal to those of other loans. This can be a substantial expense, and one to consider. A bridge loan may be a necessary option, but it is not an inexpensive one. If you can avoid a bridge loan, that is the best choice.

Since there are closing costs involved with both bridge loans and permanent financing, the additional costs can quickly add up. If there are points involved, especially if there are points for both the bridge loan and permanent loan, the out of pocket costs can become very expensive in the long run. However, depending on how much you need and how well you meet the eligibility requirements, you may have very little to pay out of pocket.

Every situation is different, so any additional costs will vary depending on your individual circumstances. Your bridge loan will be tailored to fit your needs. Lenders approach each loan initially in the same way, but once all of the information comes together, the loan quickly becomes something unique.

Any additional costs that may arise should be factored in to your budget before you consider a bridge loan. Be aware of the possibility of upfront costs. Do your research and learn what you may end up paying for your bridge loan. Don’t hesitate to ask lenders about their current rates, any upfront fees, and if points will have to be paid. Do comparison shopping to find a lender appropriate for your needs. If you take the time, then you may save yourself more money in the long run.

Need a Business Cash Advance? Call 877-749-5731

Since bridge loans are for a very short time period, the lenders usually have some very selective guidelines. The guidelines may include, but are not limited to, a minimum or maximum borrowing limit, an appraisal of the both the property that is for sale and the property that is to be purchased, and restrictions on the property that is being purchased. Every lender has there own guidelines, and some can be more selective than others.

General guidelines usually include a minimum and a maximum limit of funds being borrowed. The range is commonly from $100,000 all the way to $10,000,000. Residential bridge loans usually have a lower maximum, ranging from about $250,000 to $300,000, while bridge loans for commercial properties usually have a higher minimum, commonly ranging from $250,000 to $300,000, and a higher maximum, ranging from $3,000,000 to $10,000,000. Lenders are very up front about the amount that they are willing to finance for certain properties.

When it comes to determining how much will be financed through a bridge loan, there are many factors involved. First, the lender will most likely require an appraisal on the first property. Usually, the amount that you currently owe on your home in addition to your bridge loan should be equal to, but not exceed, seventy-five percent of your home’s current market value. If you need additional funding from a bridge loan that will be in excess of the seventy-five percent limit, lenders may or may not be willing to work with you. Residential bridge loans rely upon your home equity.

Typically, the application process for a bridge loan is relatively similar to that of other loans or mortgages. The main difference is speed. You will be responsible for providing proof of current income, along with bank statements and previous tax information. The lender will also review your credit report. Excellent credit is often required to qualify for a bridge loan.

When applying for a bridge loan, the lender will appraise the property that you are selling. If the appraisal amount reflects the equity that you need, then the bridge loan will be approved. The loan will usually go through in a very short period of time, giving you the money in only a matter of days.

Lenders also require that there be a plan in place to pay the loan once it reaches the maturity date. Lenders are more willing to work with an individual who has permanent financing lined up to pay for the bridge loan, rather than someone who may have trouble obtaining the financing. Some lenders will also give special consideration to those who are willing to obtain both the bridge loan and permanent financing through them.

Need a Business Cash Advance? Call 877-749-5731

Bridge loans can be obtained through most financial institutions. However, not everyone specializes in residential bridge loans and commercial bridge loan. Since every bridge loan is different, research the different requirements, rates, and fees of the lending institutions in your area before you make a choice. If you are really unsure of where to begin, a loan officer is a great place to start.

If you are unable to narrow down your choices, then try to obtain a bridge loan through a bank. However, most banks are not inclined to finance bridge loans, since they are very short-term and more likely to not see the borrower for any other loans. Start by visiting the institution that currently handles all of your banking needs. Since you are a customer, they will be more likely to finance a bridge loan for you so that they wont lost your business. If permanent financing is already arranged through a particular lender, they may be more apt to offer a bridge loan.

A mortgage company is a great source for a bridge loan as well. While they are trying to find you a bridge loan, they will also be trying to convince you to handle your permanent financing through them. If you are willing to finance both loans through the mortgage company, they may be more willing to work with you and find you the best loans possible.

If you are still unsure of where you should borrow a bridge loan, then the internet is a great tool to use. Through the internet you can comparison shop, get quotes, and find out all of the information that you will need for a bridge loan. The internet can also provide you with a list of professionals, such as loan officers, mortgage brokers, and even real estate agents who can help point you in the right direction.

Need a Business Cash Advance? Call 877-749-5731

Obviously, a Bridge loan is not right for every individual. First, before even considering a bridge loan, you should have exhausted all other possibilities, such as savings, retirement accounts, and even borrowing from friends and family. Second, you should make sure that you will be in the position to pay the bridge loan off upon the maturity date.

Bridge loans are great for some buyers, because it can give them a stronger position for negotiation. However, other buyers may have trouble finding permanent financing as a result of a bridge loan, or it even may end up costing them more money. Regardless of whether or not a bridge loan is appropriate, you should be well researched before you consider obtaining one. Take the time to talk to a loan officer or lender to consider all your options.

A bridge loan is definitely not appropriate if you don’t already have a binding contract of sale on your current home. You will not be able to get a bridge loan, because you have no plans on selling your current home. However, a home equity loan or a line of credit can be better options.

Need a Business Cash Advance? Call 877-749-5731