Bridge loans are a great way to increase your position in the real estate market, but they’re still a tool that not many investors utilize for their portfolios. We think it comes down to a simple lack of knowledge about bridge loans, but even experienced investors may be hesitant to use a type of loan they never have before. Bridge loans differ from conventional loans because they are issued for shorter periods of time, and they also don’t have to adhere to the same federal regulations. This also gives bridge loans various benefits that conventional loans don’t provide. Interested in learning more? Here’s 3 things you must know about using bridge loans for real estate investing.
What are bridge loans?
Before we get into the details of using bridge loans for your investing needs, you should learn the basics of them. Bridge loans are a form of short-term financing, typically issued from 6 months to 2 years. Bridge loans are intended to “bridge” the gap between the purchase of a property and your ability to secure more permanent financing for it.
For example, you can use a bridge loan to make a purchase while you’re in the process of selling a property, and you can then repay the loan once you have acquired the funds from the sale. People also use bridge loans when they need to move to a new location quickly, giving them time to sell their previous property while financing the purchase of a new one.
#1: How to get a bridge loan
Bridge loans aren’t usually offered by conventional lenders like banks, but rather by private money lenders that operate in the real estate space. Getting in contact with a private lender is the first step to acquiring a bridge loan. Ideally you want to work with a trusted lender who has experience with bridge loans. A good lender may even be able to provide you with resources to help you on your investing journey. It’s important to note that bridge loans are typically secured by owned property, but you may use the home you intend to sell as collateral on the loan.
#2: Bridge loan lenders and their requirements
The requirements that bridge lenders have will be slightly different than those of conventional lenders. In general, bridge lenders will be less interested in your credit history, and more interested in your current ability to repay the loan and whether your property makes for a good investment. Most lenders will want to see bank statements to confirm that you have available liquidity to handle monthly payments. You are also more likely to be approved for a loan if you have a detailed plan for the project, or if you have experience with real estate investing.
#3: What are the advantages of bridge loans?
Not having to adhere to the same strict requirements as conventional loans give bridge loans many distinct benefits. Bridge loans have the ability to close in as little as a few days, unlike traditional 30-year mortgages which have a process that can take months. As mentioned, your credit plays less of a part when applying for a bridge loan, which can be good if you don’t qualify for a traditional loan. Finally, bridge loans tend to be flexible due to their short-term nature, and you have the ability to customize your loan to fit your exact use case. Lenders are also more lenient with their terms, and they’ll be more willing to work with you for a loan extension or pre-payment if that becomes necessary.
Do you have a real estate project you would like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to acquire a Bridge Loan on a property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.