If you are new to real estate investing or are looking to buy a new home, you may be interested in bridge loans. An excellent option for anyone who is simultaneously looking to buy and sell property, bridge loans offer plenty of flexibility for borrowers. Not only ideal for homeowners, but bridge loans can also help commercial real estate investors renovate properties or find new tenants. If you’re interested in this type of funding, read on to learn more.

What is a Bridge Loan?

A bridge loan is a short-term financing option for borrowers who need additional and immediate cash flow to fund an investment. Typically, the borrower finds a great deal on a property, and instead of losing out while taking the time to gather the financing, they seek out a bridge loan. 

Bridge loans are relatively common and often used in business transactions where borrowers are waiting for long-term financing. When talking about bridge loans, we are exclusively referring to real estate funding and investment. 

Why Get a Bridge Loan?

Depending on the type of asset you’re working with, there are different reasons why you might need one. For example, borrowers looking to invest in a multifamily housing complex may wish to renovate the property. However, if the units are already full, the best time to do so is between renters. 

Renovations like kitchen appliances, countertops, flooring, paint, and lighting can be costly when looking at multiple units. In this case, a bridge loan can help the borrower improve the property, allowing them to raise rent to match the updated quality of the location. 

Likewise, borrowers investing in commercial real estate may wish to renovate their retail, industrial, office, or flex use spaces to attract a new clientele in an up-and-coming area. Again, bridge funding can help finance the expense that comes along with the renovation. 

For homeowners who are moving and wish to purchase a new home, a bridge loan is an excellent option. Since they don’t have the funds from selling their home just yet, a bridge loan helps “bridge the gap.” 

Pros and Cons of Bridge Funding

While a bridge loan might seem like an attractive option, be sure to consider the pros and cons before committing to any kind of financing option.

PROS: 

• Short-term capital offers flexibility to borrowers who need to meet expense obligations.
• If you put down 20%, you can avoid private mortgage insurance (PMI). However, your mortgage payments will increase if you do not put down 20%. 
• Most bridge loans are non-recourse, so the lender can only seek repayment through the sale of the property.

CONS:

• Interest rates tend to be much higher because of the flexibility offered to borrowers.
• Despite financing flexibility, loan terms are often more stringent regarding penalties or late fees.
• As soon as the bridge loan closes, you must pay it back alongside the new mortgage, meaning two monthly payments for the same property.

Remember, each person’s situation is different. The best way to find out if you qualify for a bridge loan is to reach out to an accredited lender with decades of experience in commercial lending. 

Terms Surrounding Bridge Funding

While convenient, bridge funding is not always the most affordable option. However, if it means securing a meaningful deal to put your family in a new home or investing in prime real estate, it might be worth it. 

Bridge loan interest rates vary based on your credit score and the total sum of the loan. They tend to range upwards from the prime rate to the tune of 8.5% to up to 10.5% when looking at single-family homes. Bridge loans for businesses are much higher and hover between 15-24%. 

Keep in mind that the borrower must still pay for all closing costs, legal fees, administrative work, appraisal fees, escrow fees, and any loan origination and notary fees. This usually comes to about 1-3.5% of the total loan amount.

Bridge funding lasts for one year, and borrowers must have a long-term financing option approved and ready to be enacted immediately. Not to mention, since a bridge loan is considered a mortgage on its own, you also must be able to qualify to hold two mortgages. 

To Bridge or Not to Bridge

If you’re still not sure a bridge loan is right for you – or if you’re ready to apply for one now – reach out. At Money Management Investment Fund LLC, we offer bridge lending for all property types with a 70% loan-to-value ratio and terms ranging from 12-36 months. Not only that, but we’ll lock you in at a fixed rate of 8.99% interest. Our team of dedicated loan advisors is here to help you make the right choice for your unique position. Contact us today to get started.