As a mortgage broker or private lender, you’ve probably heard a range of opinions about bridge loans—some accurate, some far from the truth. Misconceptions can create hesitation, preventing brokers and originators from offering bridge loans as a financing solution to their clients. However, bridge loans are a powerful tool that can help investors move quickly in competitive markets, access liquidity, and capitalize on opportunities that traditional financing might not support.
Let's break down five of the most common myths about bridge loans and how brokers can inform their clients to effectively use this financing solution.
Most think bridge loans are reserved for desperate borrowers who don't have any other funding available. In fact, experienced investors, builders, and business owners use bridge financing strategically to act fast and maximize cash flow. As a broker, knowing how bridge loans fit into a client's financial plan can make them a proactive solution instead of a last option.
For example, in a competitive real estate economy, money rules. Bridge loans allow customers to make more effective offers by removing financing contingencies, making their offers more appealing to sellers. Rather than waiting for conventional financing, which takes 30 to 60 days to close, a bridge loan lets them close on a property in days.
Also, bridge loans can be a lifesaver for clients who are moving from one investment to another. If their funds are locked up in a property they have yet to sell, bridge lending provides them with the liquidity to take advantage of new opportunities without losing out on account of timing issues.
It’s no secret that bridge loans come with higher interest rates compared to traditional loans, but that doesn’t mean they’re unreasonably expensive. As a broker, it's important to help clients see the bigger picture.
Bridge loans are short-term, usually between 6 and 24 months, so clients won't be saddled with decades of high interest rates. Early repayment flexibility with minimal prepayment penalties can be more economical than long-term loans with high exit fees.
Additionally, the cost of NOT moving fast in real estate frequently outweighs the price of a bridge loan. Should a borrower pass up a valuable opportunity by holding out for conventional financing, the cost may prove to be greater in foregone profits than interest paid on a bridge loan.
Inviting clients to consider opportunity costs and returns on investment can assist in making clients value bridge financing not as a cost but as a strategic resource.
One of the biggest worries about bridge loans is that defaulting will lead to aggressive penalties or immediate foreclosure. Although defaulting on any loan is undesirable, bridge lenders are often more cooperative than conventional banks in terms of loan restructuring.
All lenders are not alike, but several private lenders provide terms to extend the term of the loan or refinance into a different product instead of going straight for foreclosure. Flexible payment arrangements and interest reserves can also be allowed by some lenders to keep borrowers current during the term of the loan.
As a broker, informing clients about lender procedures, repayment terms, and possible exit strategies can calm fears and render bridge loans more appealing.
The second frequent misperception is that bridge loans share the stringent requirements of conventional loans and, therefore, are hard to qualify for. Bridge loan underwriting is usually more accommodating than traditional mortgage financing.
Unlike banks that rely heavily on personal credit scores and income documentation, bridge lenders focus on asset-based lending. This means that the primary factor for approval is the value of the collateral property and the borrower’s exit strategy rather than their credit score or debt-to-income ratio.
For brokers, this is a huge opportunity to serve clients who will not qualify under traditional financing for credit history, self-employment income, or non-traditional financial scenarios. Marketing bridge loans as a viable option can assist brokers in increasing their customer base and sealing deals that regular lenders will reject.
While bridge loans are usually applied to bridge the gap between sales and purchases of properties, their use is far more advanced than mere purchases. Borrowers can use bridge loans for all kinds of financial plans, such as:
For brokers, understanding these diverse applications allows you to position bridge loans as a versatile financing tool rather than a one-dimensional solution.
As a broker, offering bridge loans can set you apart in a competitive market. Here’s why integrating bridge financing into your offerings can benefit both you and your clients:
RCN Capital provides mortgage brokers, private lenders, and referral partners with competitive bridge loan solutions. If your clients require financing for fix-and-flip ventures, short-term funds, or transitional financing, we offer:
Contact us today to learn more about our wholesale lending programs and how we can grow your business.