Bridge Loans are a form of financing mostly used by real estate investors that can’t get traditional forms of financing. These types of loans are generally used when the investor or a business in some cases, needs a quick, short term loan that will help them meet their immediate financing needs until a more permanent loan is secured. One thing to consider when trying to secure a more permanent loan to pay off a bridge loan is how many fees you are going to incur while having the bridge loan. In order to off set those fees you need to make sure you take out a big enough loan to cover them. There are still pros and cons of receiving bridge loan financing, but it is still a great way to get financing. Keep reading to learn more.
Most lenders will only give you a bridge loan if you have enough assets that will cover the entirety of the loan in case you end up defaulting and are unable to pay the debt back. Lenders have to assess the risk when doing business with you or they could end up losing a lot of money very quickly.
More About Bridge Loan Financing
Most real estate investors will purchase bridge loans for the following reasons:
- To purchase a property that will provide income such as a commercial building or a family home.
- To renovate a building that will be able to be released for higher incomes.
- To create a home addition that will increase a home’s value.
- To acquire equipment or hire contractors for renovations on the home or building that is being purchased.
One of the major benefits of choosing a bridge loan over traditional financing is that bridge loans can be acquired much quicker than if you were to go through a normal financing company. Typically bridge loans are usually closed within 15-30 days of getting approved. So if there is a home on the market that you are trying to obtain before another person, a bridge loan can get you the funds you need faster than a normal loan to purchase the home and then you can apply for the actual mortgage after you have secured the property. Bridge loans are also an easy way to get financed for a variety of creative projects. If you are wanting to do upgrades to your home by putting in a new bathroom or kitchen or even putting on an addition to your home in the form of adding on more rooms, a sun room, or even a deck a bridge loan is a quick way to secure the funds to do that. Furthermore, most bridge loan lending companies will allow multiple different types of payment options with no prepayment penalty fee.
However, this being said, there are several factors you should take into consideration when applying for these types of loans and they are as follows.
- Bridge loans usually come with higher interest rates due to their short term, for each month the loan isn’t paid back it will incur interest making the final payback more than the original loan.
- Since the loan has to be paid off at a quicker rate, this also means that the borrower must make larger monthly payments than a typical loan. If you have the funds available to make these payments then great but if you don’t then it can put a financial strain on you.
- If your payment is late on a bridge loan, your lender might charge you a substantial late fee or other additional fees, depending on your terms and conditions. Making it that much harder to pay back the loan.
That being said, bridge loan financing is still a great financing option for things like construction loans, house flipping projects, and even home additions. If you are in need of a short term loan, then bridge loan financing could be right for you. If you have questions about a bridge loan and if it is right for you, or any of our other lending options then please give us a call and we will see what we can do for you.