Bridge loans are an incredibly useful tool for investors, but there are still not enough people who utilize them in real estate. A bridge loan is a form of short-term financing which can be used to “bridge” the gap between acquiring a property and being able to secure permanent financing for it. They’re perfect for time-sensitive investment scenarios because they have the ability to close and deliver funds faster than other forms of financing. There are also certain cases where a bridge loan will be the perfect way to finance an investment. Are you considering using a bridge loan to acquire your next real estate property? Continue reading to learn more.
What is a bridge loan?
As mentioned, a bridge loan is a form of short-term financing that typically ranges from six months to two years in duration. Bridge loans tend to have higher interest rates than traditional real estate loans due to their short-term nature. The upside is that bridge loans are a very flexible financing option, and the lenders who issue them are more willing to work with you when it comes to your deal. For instance, many lenders offer interest-only options where the principal amount is only due at the end of the loan term. Bridge loans also close much faster than other types of financing, with the ability to provide funds in as little as two weeks after applying.
How can I apply for a bridge loan?
The process of obtaining a bridge loan starts with finding a trusted bridge lender. Ideally, the lender you choose should already have experience in the real estate space. The application process will be similar to that of a traditional loan, but it will be less intensive and move much faster. You are also more likely to qualify for a bridge loan than a traditional one. Your personal credit history will be less of a factor because lenders will be more interested in the property itself and whether it makes financial sense.
When should I use a bridge loan?
The most common use for bridge loans is in time-sensitive deal scenarios since they can deliver funds much faster than other methods of financing. If for example, you’re in the process of selling a property but would like to move forward with another purchase, you can use a bridge loan to acquire the new property and then repay the loan after you’ve completed the sale. Bridge loans have also been used to acquire properties when people need to relocate quickly, giving them time to sell their old properties while having the funds to move to their new homes.
Another common use for bridge loans is with home flipping. The average flip is completed in six months, which makes bridge loans a more practical solution than a long-term loan. Many lenders will offer products specifically designed for flipping which cover the cost of renovations in addition to funding the property purchase. You’re also more likely to be approved for a bridge loan for home flipping, since traditional lenders may not be willing lend on a property that is in poor condition. Alternatively, bridge lenders will take your property’s ARV (after-repair value) into consideration when calculating your loan amount.
Bridge loans are a great tool for real estate investors, but you should also make sure you’re using the right loan product for your deal scenario. The best way to do this is by working closely with a trusted real estate lender. A good lender will not only be able to help you choose the right product, but they will also be able to offer you resources to help you make a better investment.
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. 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 finance an investment with a bridge loan, RCN Capital has competitive loan options available.Connect with us todayto discuss your next real estate investment.