The Ins and Outs of Bridge Loans for Real Estate Investors

For real estate investors, a reliable form of financing can sometimes be hard to find. You may have a go-to lender or loan product that you’ve used to acquire the properties in your portfolio, but there are certain cases where it won’t be a viable solution, like with time-sensitive deals. In these scenarios, you will have to turn to alternative financing methods. Bridge loans are often used by investors to acquire properties in the cases where traditional methods don’t fit the bill. Interested in using a bridge loan to acquire your next investment property? Continue reading to learn more.

A bridge loan is a form of short-term financing provided by private or hard-money lenders. Bridge loans allow investors to purchase property quickly and then repay the loan once they have secured more permanent financing. They are often used to “bridge” the gap between the purchase of a new property and the sale of a property you previously owned. Bridge loans are typically issued for periods of 6-24 months, and will have higher interest rates due to their short-term nature.

Qualifying for Bridge Loans

Bridge loans generally have different requirements for eligibility than traditional loans do. An important way they differ is that bridge loans are backed by owned property, such as the home you are looking to purchase. Your credit is less of a factor when applying for a bridge loan since lenders will be more interested in the property itself and whether it makes for a good investment. You are also more likely to be approved for a bridge loan if you have experience with real estate investing.

Advantages of using Bridge Loans

There are significant advantages to using bridge loans for acquiring real estate. First and foremost, they give you quick access to capital in times when you need funding fast. They are known for their very short turnaround time, and funding can be delivered in as little as two weeks after applying. Their short term nature also makes them good for projects where you intend to resell the property quickly, like with home flipping. Many bridge lenders offer loan products specifically designed for flipping that cover all rehab costs associated with a project.

When to use a Bridge Loan

Bridge loans can be the perfect solution for certain investment scenarios. If your funds are tied up like when you’re in the process of selling a property, a bridge loan allows you to still move on a lucrative investment opportunity. Bridge loans can also be a good solution for when your property doesn’t meet bank criteria. For example, if you plan to make heavy renovations to a property, a traditional lender may deem your project as too risky, but you may still be able to qualify for a bridge loan. Finally, you may use a bridge loan if you don’t meet the strict requirements of traditional lenders. Bridge lenders typically have less stringent credit and income requirements, and so long as you’re able to prove your ability to repay the loan you are likely to be approved.

Steps to take when applying for a Bridge Loan

If you have a project you would like to use a bridge loan for, here are the steps you should take when applying. First, you should find a quality, trusted lender that you know has experience with real estate investing. Next, you should gather all the required documentation such as your proof of income, property information, and a detailed plan outlining what you’ll do with the property. Having all these in order beforehand will make you more likely to be approved for the loan. This information is also important so that the lender knows how much funding to give you. Most bridge loans have a Loan-to-Value that caps out at 80% of the property’s value, but this number will also depend on your credit, income, and real estate investing experience.

RCN Capital

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 today to discuss your next real estate investment.

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