Bridge Loans can be a great solution for financing real estate investments, especially in a pinch. They provide investors with quick funding to help them secure time-sensitive deals, among the many other benefits they provide. Bridge loans may also serve as a way to fund renovations for home flips, and cover operating expenses while waiting for more permanent funding to become available. On the whole, these loans are a very valuable tool that can help real estate investors leverage more funding and increase their position in the market. Continue reading if you want to learn more about using bridge loans for real estate investing.
Understanding Bridge Loans
A bridge loan is a form of short-term financing provided by a private lender that is typically not a bank or credit union. They have shorter loan periods ranging between 6 and 24 months, and have higher interest rates than standard mortgages due to this short term. Bridge loans are intended to be used for scenarios where you need funding fast. A perfect example of this is finding a great deal on a property that you know won’t last long on the open market. A bridge loan allows you to move forward with the deal immediately and secure more permanent funding afterwards when necessary.
Advantages of Bridge Loans
The main benefit of using bridge loans is the flexibility they provide borrowers in terms of financing. As mentioned, these loans can be used for the fast acquisition of properties, which is only possible due to their quick application process and turn-around times. Flexibility in funding also means bridge loans can be used for a variety of reasons: some investors use them to cover operating costs for short periods of time while stabilizing the revenue and earnings of their businesses.
The short-term nature of bridge loans makes them perfect for funding fix and flip investments, where you will be reselling a property shortly after purchasing it. Sometimes, it can be hard to acquire a loan for a renovation project from a bank if you don’t have stellar credit. Bridge loans have the benefit of a much less stringent application process that relies more on the property itself than your personal credit history.
Risks and Drawbacks
If you’re thinking about applying for a bridge loan to fund your next investment project, you will have to take all the risks into consideration as well. As mentioned, bridge loans have higher interest rates than standard 30-year mortgage loans, along with a much shorter repayment term. Besides this, you should be confident you can secure permanent funding for your property before the end of the loan term. You don’t want to get stuck paying two mortgages at the same time because you weren’t able to offload a property in time.
Tips When Applying for a Bridge Loan
The first step to finding a bridge loan is connecting with a reputable lender that specializes in short-term loans. Ideally, they should already operate in the real estate space or have experience with real estate investing. You will need to prepare some documents to submit with the loan including detailed information about the property, proof of your debt-to-income ratio, and other personal information. Borrowers may ask for a credit report when determining specific loan terms. Before you sign on the dotted line you must fully understand these terms as well as the loan timeline and process. You should have full confidence in the quality of your investment, the loan, and the reputation of your chosen lender. If you’re at that place and the numbers all make sense, then you should be ready to move forward with financing your real estate deal.
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 finance an investment with a bridge loan, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.