If you want to buy property but don’t have immediate access to the cash to do so, consider a bridge loan.
Bridge loans provide short-term financing commonly used for transition periods. If you need to purchase a property before you can sell one that will help finance the costs, a bridge loan allows you to move quickly and buy when you need to.
What is a Bridge Loan?
There are a handful of options to finance investment property. Loan types often differ based on their qualification requirements and the terms they offer. The best loan for you will depend on your individual needs.
With a bridge loan you can qualify for a short-term mortgage that will “bridge” the gap between the financing you need to purchase property and the current cash you have available.
It works well for homeowners who may use the immediate cash of a bridge loan to put a down payment on a new home, while waiting for their current home to sell. Real estate investors may use bridge loans to cover the gap between purchasing one property without having to wait for the sale of another. When a property then sells, you can pay back the bridge loan with the money made from the sale or by getting another type of loan for the property you just purchased.
Bridge loans also allow for more flexible qualification requirements because they don’t have to meet the documentation requirements that the Consumer Financial Protection Bureau sets for standard loans. Instead they rely on the property’s asset value, rather than your personal income.
How to Get a Bridge Loan
If you’d like to see whether you qualify for a bridge loan, connect with us. To get you started, we’ve outlined the steps and qualifications needed to help you understand the process.
The Financing Process
By sharing basic information about your potential purchase and plan to pay back a new loan, we’ll work with you to see if a bridge loan meets your needs and whether your situation qualifies.
As we move through the process we’ll discuss the terms your property for and your financing options, as well as request the necessary documentation.
We’re with you through each step, leading to a simple and efficient closing so that you can move forward with your investment.
Bridge Loan Requirements to Meet
These are some of the common requirements often needed to qualify for a bridge loan. If you have questions about these requirements, we’re here to help.
- We’ll need to know what the expected leverage is for the property. In many cases, the Loan-to-Value ratio needs to be above 70-75%.
- We don’t need income information but do need bank statements and credit score information for the borrower.
- An appraisal of the property will need to be done to assess its value.
- You’ll need to provide annual insurance information for the property.
- To understand the stability of the investment, it’s helpful for us to have details for your plan to purchase the property and repay the bridge loan.
Bridge Loan FAQs
Financing your next property is an important step in reaching your investment goals. It’s normal to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
Bridge loans are available to a range of people, from real estate investors to homebuyers, businesses to consumers. They can be used to finance various property types, including single-family, multi-family, mixed-use, and commercial property.
Whether you need to relocate your company’s office to a new city before selling your current building, you need to make an offer on a new home before your current one sells, or you need to buy an investment property before you’ve sold another, a bridge loan can help you with the transition.
If your situation and the property qualifies, bridge loans are useful anytime you need temporary financing to help you make the next move with your real estate investments.
Bridge loans provide financing for a specific investment purpose. They cover the costs of purchasing a new property before the sale or another or before you can get long-term financing for the property. For this reason they’re offered with shorter term lengths, meant to cover the timeline of your transition.
They meet unique financing needs to bridge the cash gap by offering flexible qualification requirements based on the value of the property you need to finance. This makes them more accessible than standard loans that require certain income and other documentation that is related more to the borrower’s personal finances than the property itself.
Although your personal income isn’t considered for financing, you will need to share your credit score to get approved for a bridge loan. The minimum requirements vary depending on the situation and can be more flexible than standard banks allow. In many cases a credit score of 680 or higher is often best.
Bridge loans are often interest-only, meaning you pay only the interest charged each month for the term length of the loan. The full amount you borrowed isn’t due until the end of the loan term.
In many cases, you don’t need to make monthly payments during the first few months after closing a bridge loan but will need to from there until you can pay it off completely.
How you pay off the loan will depend on your unique situation. There are a handful of options. For example, you could pay off the bridge loan from the profits you make selling a property you currently own. In some cases, you may be able to refinance the bridge loan to a new loan type that is intended for making long-term payments.
There are closing costs associated with processing any loan, and the costs of a bridge loan are comparable to standard mortgages. They include costs for the lender to service the loan, as well as an appraisal and other fees.
You’ll also need to make a down payment that will be paid at closing. The down payment amount will depend on the specific details of your project and your equity.