Bridge loans are a widely used investment tool that can have many different purposes. However, because the anticipated value of a property following improvements can be used as security, a bridge loan is an attractive option for people in the fix and flip business. Interested in learning more? Here’s how to use a bridge loan to fund your fix and flip.
What’s a Bridge Loan?
A bridge loan is a short-term loan that you can utilize to cover the gap in financing between buying a new house and selling your old one. When you wish to buy before you sell, you will not have money from the proceeds of the sale to place a down payment on a new home. If you were depending on that money to purchase a new home, this might present a challenge. To assist you in covering the cost of a home acquisition in the meantime, you may turn to a bridge loan.
Benefits of a Bridge Loan
For investors, real estate bridge loans are a crucial instrument. Investors can acquire funds by taking out a short-term bridge loan when the necessity to finance a new venture on a short schedule emerges. Here are some of the advantages of using a bridge loan.
One of the key benefits of a bridge loan is its flexibility, which makes it an attractive option for many borrowers. Unlike traditional mortgages, which typically have strict underwriting requirements and a longer application process, bridge loans can be approved and funded relatively quickly. This can be especially useful in a fast-moving real estate market where buyers need to move quickly to secure a property.
Another advantage of bridge loans is their flexibility in terms of repayment. Many bridge loans offer borrowers a range of repayment options, from interest-only payments to deferred principal payments. This can be helpful for borrowers who need to manage their cash flow and may not have the resources to make full principal and interest payments each month right away.
Beneficial in a Seller’s Market
Bridge loans can be highly beneficial in a seller’s market where homes sell quickly and often receive multiple offers. In such a market, a seller may be more likely to accept an offer from a buyer who has already secured financing, rather than taking a risk on a buyer who still needs to sell their previous home. Bridge loans can help bridge the gap between buying and selling, giving buyers the ability to make a competitive, all-cash offer that is more likely to be accepted by the seller. This type of loan allows buyers to use the equity in their current home to secure financing for the new home, giving them more flexibility and buying power.
As a real estate investor, you never know when the perfect investment opportunity will present itself. Avoid squandering valuable time looking around for funding. If you’ve been investing for some time, you’re aware that good possibilities disappear rapidly, so it’s best to get financing in order as soon as possible. By building a relationship of trust with a lender, you can put yourself in a position to request the right kind of loan and get approval earlier than the next person who decides to compare rates.
How to Fund Your Fix and Flip with a Bridge Loan
Are you wondering how to fund your fix and flip with a bridge loan? Before you can buy a fix and flip, you must first be approved for a bridge loan. When determining your eligibility for a bridge loan, your lender will consider your debt-to-income ratio, the amount of home equity you have, your credit score, and possibly your household income. It can be difficult to qualify if you don’t have much equity in your current home. If your lender determines that you are a suitable candidate, the approval process for a bridge loan can be much faster than it would be for a regular mortgage.
Bridge loans typically have a one-year grace period before you must begin making payments. This will vary from lender to lender, but it’s a good idea to structure things so that you can pay off your bridge loan with the proceeds from the sale of your home. It is critical to discuss repayment terms with your lender and ensure that you understand how your particular loan works.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.