Purchase Real Estate Property with a Bridge Loan

Do you need funds to build a house on a development property that you plan to sell? Perhaps you want to get into real estate as a business with a multifamily property where you live in one unit and rent out the others. In these situations, it can be difficult to get a lender to back you because your goals don’t fall under the traditional real estate loan. Fortunately, there are alternatives, such as the bridge loan.

What is a Bridge Loan?

A bridge loan is also referred to as gap financing. Like its name suggests, a bridge loan is designed to bridge the time between the sale of a property and the purchase of another. The loan immediately provides funds to someone waiting for money to come in to pay for the purchase.

Once the buyer receives their funds, they pay the bridge loan back. This type of loan is considered short-term financing. They are usually set up for six months up to two years and use properties currently owned as collateral. Interest rates are generally higher than for traditional loans because of the extra risk.

Bridge loans are ideal for borrowers who have funds that aren’t readily available and would have missed out on an opportunity otherwise. There are several common scenarios where a bridge loan can be beneficial.

While many people think of bridge loans for investors, they are also useful for consumer real estate transactions. Fewer options exist for residential buyers, and most traditional lenders don’t offer bridge loans because of the high risk.

What are Some Bridge Loan Examples?

To better understand bridge loans and how they can help you, here are some examples:

When buying a new real estate property before you sell your old one

This situation can cause issues if you don’t have the cash for the down payment. A bridge loan provides the needed funds until your current home is sold.

When providing a contingency-free offer

Providing a contingency-free offer to a seller allows you to stand out from other buyers. A bridge loan gives you the money to make a contingency offer that doesn’t depend on getting your home sold.

To quickly acquire a multifamily property

You can use a bridge loan to acquire a multifamily property for a 1031 Exchange to avoid paying capital gains on a property you are selling. You can also decide to rehab the property for use with a bridge loan. Once you have completed the work, you can apply for long-term financing with a commercial loan and pay back the bridge loan.

To cover the difference in closing dates

When closing dates on your old and new properties don’t align, it can be challenging, which is when a bridge loan can help with temporary funds for the new property until you can repay it with the sale of your current property.

Immediate funding for business purposes

When you need immediate funds, a bridge loan can solve the problem. You may want to renovate a property before reselling it and need the funds until the work is done and the transaction is completed.

A bridge loan can give you the opportunity to find the right investment even if you don’t have the cash in hand. It can be difficult to find a traditional lender willing to take the risk with a bridge loan. However, hard money lenders are more likely to consider buyers who don’t fit the usual profile. They look at the deal itself and don’t just focus on specific requirements.

Bridge loans allow investors to seize opportunities that may have a short window for them to act. They can purchase an investment property while waiting for other funding to come through. Investors who seek out properties to fix and flip may use bridge loans to fund the purchase, including renovations. Once the property has been renovated and sold, the investor pays off the bridge loan.

A bridge loan can be used for many business situations, but it’s commonly seen in real estate transactions. It allows more flexibility to buyers in unique situations where they may be short on capital.

How to Get a Bridge Loan

The property you are purchasing must be a good deal for lenders to consider a bridge loan. However, they focus mainly on your current assets. They will look at the value of the property you own and how much debt is attached to it. The terms of the loan and interest rates are determined during the negotiation of the loan.

Reid Lending Partners provides bridge loans from $75,000 and up. These loans can be used for acquisition, expansion, or for a start-up. Depending on the amount of your collateral, you can get up to 100 percent financing with terms up to ten years.

These loans have no pre-payment penalties with reasonable rates and fast funding. No minimum FICO score is needed.

Our team at Reid Lending Partners is able to structure a bridge loan for the most unusual lending situation. We are proud to fill the gap that has been left by traditional financial institutions.

Let us hear about your loan scenario. If you’re ready to get started, submit it today.