Bridge loans are a short-term source of funding most often used during periods of transition.
Bridge loans typically are most often used in the real estate investment world, but they have the potential to provide funding for a wide range of purposes, projects, properties, and borrowers.
Let’s dig into this powerful loan type, including what a bridge loan is, examples of how they are used, and how to find a reputable lender with bridge loan experience.
What is a bridge loan?
A bridge loan is essentially when a borrower has the funds available to make a purchase, but they just don’t have it right now.
Bridge loans are also known as a swing loan or gap financing, because they most often “bridge the gap” between the sale and purchase of a property.
They provide immediate funds a borrower can use while they wait for their permanent source of financing.
Once they acquire permanent funds, or a source of long term financing, they can quickly repay the bridge loan.
Bridge loans are just meant to be a source of short term financing, lasting anywhere from six months to a year or two.
While it’s ideal to have the money on hand to purchase a new home, there are so many scenarios where this just isn’t the case. Timing is everything, and it often doesn’t quite work out the way we would like.
Real estate bridge loans allow borrowers to secure a deal when they otherwise may have missed out on a perfect business or personal opportunity.
Let’s take a look at the most common scenarios where a bridge loan helps borrowers in a bind.
What are some bridge loan examples?
Bridge loans can be used for both business and consumer purposes.
Bridge financing is common among real estate investors and business owners, but less common among consumers simply due to availability.
Banks or other traditional lenders often don’t offer or advertise these types of loans to consumers because they view them as higher risk. Bridge loans use one of your current properties, such as your home, as collateral.
However, hard money lenders are flexible private lenders who aren’t required to follow the same requirements as banks.
Let’s look at some of the most common bridge loan scenarios:
1. Make a down payment on a new property
If you’re between the sale and purchase of two properties but need the money from your future sale for a down payment, you can use a bridge loan.
You also can make a 20% down payment, which eliminates the need to pay private mortgage insurance (PMI).
2. Make a contingency-free offer on a home
Contingency-free offers are attractive to sellers, especially in a seller’s market. This means your purchase doesn’t depend on the sale of your current property.
Bridge loans allow borrowers to make contingency-free offers by providing the funds they don’t currently have available yet.
What’s your loan scenario?
3. Urgent need to move quickly without time to sell your current home first
Sometimes we need to make a fast move on a property, but don’t have the funds to do it.
For example, you get a new job in a different city, and you have to start your new job in two weeks. It’s not likely that you’ll be able to sell your current home in this short amount of time, because you also have to focus on finding a new home in your new city.
If you focus your efforts on finding that new home, you can use a bridge loan to put a down payment on this home, then sell your old home and use the funds to pay off the bridge loan.
4. Closing dates for purchase and sale don’t line up
Often, closing time isn’t on our timeline. It depends on when the lender and seller are available.
This means that sometimes the closing date for a purchase comes before the sale closing, so we don’t currently have the funds to cover the closing costs.
With a bridge loan, you can use the immediate cash flow to close on your new home, then pay it off right away once you close on the sale of your old property.
5. Immediate funding for business expenses, inventory, or upgrades
For business or investment purposes, there are dozens of reasons a bridge loan is an essential tool.
If the perfect opportunity for a new business or investment property pops up, you may not have the funds on hand to make a down payment and secure the deal. A bridge loan can help you seal the deal on these types of opportunities.
If you need to secure immediate funds for renovations, business expenses, or inventory during periods of transition, business bridge loans can bridge the gap and ensure you can move forward with your goals.
Is it hard to get a bridge loan?
Hard money lenders make bridge loans simple, but it can be difficult — and sometimes impossible — to get a bridge loan from a traditional lender.
Traditional lenders have strict requirements for credit score, debt-to-income ratios (DTI), income, equity, properties, and more. They have boxes to tick off to protect their investment.
Hard money lenders don’t have these boxes. They are individuals, investors, or funding groups that lend to borrowers based on their own industry expertise. They can make decisions based on common sense and the overall merits of the deal.
Hard money bridge loans are based on the borrower’s current assets. Interest rates and repayment terms will be negotiated during this process.
Marquee Funding Group is an experienced team of savvy real estate investors and loan originators who offer hard money loans. We are able to provide the following to our borrowers:
- Closing in as fast as seven days
- Simple application process and underwriting
- No limit to the number of loans per borrower
- Flexible lending requirements
We are focused on building relationships with our borrowers. You aren’t just another deal to us, you are an investment partner.
How do I get started with a bridge loan with a hard money lender?
Marquee makes the bridge loan process simple.
We want to know about the property, whether is your first, second, or third mortgage, the amount of money you need and how much your current property is worth.
From there, we will ask for a few other details, and make a fast decision based on your answers.
Marquee Funding Group can lend up to 70% of the combined value of any two, three, or more properties while keeping existing conventional loans in place.
We are able to take any position on the departing residence, while taking a first on the new purchase. Using both properties as collateral for one loan, we can give borrowers a short-term loan to acquire their new residence, move in, and give them enough time to sell the departing residence.
Our team is capable of structuring even the most unusual or challenging lending situations. We are proud to fill a gap left by other financing institutions. Let us hear your unique scenario today! If you’re ready to get started, submit your loan scenario.
Photo by Mikhail Nilov