In a high-demand real estate market like California, borrowers must be prepared for bidding wars and quick decision-making.
To assist with these specific borrower scenarios, private lenders such as Marquee Funding Group offer residential bridge loans.
In this article, we’ll explore the role of a bridge loan in California’s real estate market, including how it works and what borrowers must do to qualify.
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What is a bridge loan and how does it work?
A bridge loan is designed to “bridge the gap” between an immediate need for cash and the borrower’s ability to secure permanent financing.
Residential bridge loans often have shorter terms of up to a year and are expected to be repaid once the original property sells.
Common bridge loan scenarios
1. Buying before selling
Homeowners who need to purchase a new home before they can sell their current residence can leverage a bridge loan.
This includes scenarios where homeowners need to move quickly for a job opportunity or life change or homeowners who want to downsize or upsize.
From an investor perspective, individuals may find a lucrative opportunity for a future rental or fix-and-flip project but don’t yet have the funds to secure it.
2. Market advantage
Bridge loans can make an offer more attractive to sellers in a competitive market, including offers that don’t rely on the sale of the existing property.
3. Short-term ownership
Individuals who need to relocate but plan to return to their primary residence can take advantage of a bridge loan to cover the temporary costs.
Bridge loans can also be used during divorce settlements to secure alternate housing or to avoid having to move into a rental property while the family waits for their home to sell.
The role of bridge loans in California’s real estate market
Bridge loans offer numerous advantages to both buyers and sellers in the California real estate market.
Quick, competitive offers
Properties in California often will get multiple offers, especially in popular areas.
Bridge loans allow buyers to act quickly and make competitive, non-contingent offers on homes without having to sell their current homes first.
This factor alone can make or break a seller’s decision.
Overcoming timing issues
It can be difficult to accurately time real estate transactions in California.
Often, a buyer will find the right property before they have sold their current property.
Bridge loans provide the necessary funds to cover this gap, allowing homeowners to navigate the tricky transition without missing out on their ideal property.
Avoiding temporary housing
Another common timing issue in the California real estate market is when the current home sells before the borrower has completed the purchase of their new property.
A bridge loan can quickly provide the funds necessary to secure the new home, avoiding the need for borrowers to find temporary housing and move their belongings twice.
Eliminating mortgage insurance
Conventional loans require private mortgage insurance (PMI) payments unless the borrower has at least 20% equity in the home.
Borrowers who use a bridge loan to make a 20% down payment on a new home will eliminate the need to pay PMI, which can be beneficial in California’s pricey housing market.
Supporting sellers
Buyers with bridge financing have a competitive edge against other offers because they can complete purchases more quickly.
As a result, sellers can move more efficiently through the sales process and onto other projects and properties.
Bridge loans streamline the purchasing process for both parties, which makes them a great option for those buying and selling in a hot market, which California frequently experiences.
Navigating tough markets
Economic challenges and interest rate adjustments make the homebuying process more difficult.
Bridge loans offer a flexible financing source that helps homeowners adapt to rapidly changing conditions and navigate the market more effectively.
Bridge loan eligibility and requirements: Hard money vs. traditional
Bridge loans are difficult for many borrowers to qualify for through traditional means such as banks or credit unions.
Traditional financial institutions must enforce strict income and employment requirements.
Hard money lenders, on the other hand, can navigate the process with greater speed and flexibility.
Financial health
Hard money lenders such as Marquee Funding Group place far less emphasis on the borrower’s personal finances than traditional lenders, but will generally take a look at the following:
- Credit score
- Bank statements
These factors are just to get a picture of your financial health and ability to repay, rather than strict, non-negotiable requirements.
Property as collateral
Bridge loans are secured by real estate, whether by the borrower’s current home, the new property being purchased, or another property.
Hard money lenders may evaluate the property’s loan-to-value (LTV) ratio to determine approval.
Exit strategy
Hard money lenders are primarily focused on a borrower’s exit strategy, which details how the borrower plans to repay the loan.
Typically, repayment occurs through the sale of another property or refinancing into a long-term mortgage.
Fees and costs
Bridge loans generally have higher interest rates than traditional loans due to their short-term nature and higher risk.
Borrowers also can expect to pay origination fees and other associated costs and fees. Your lender will explain these costs to you before closing.
Rapid approval and funding
Because hard money lenders are more focused on the overall merits of the deal rather than strict income and employment requirements, they can approve and fund loans quickly.
Hard money lending is key in competitive housing markets.
How to apply for a bridge loan in California
1. Determine your needs
- Outline why you need a bridge loan and how you plan to use the funds
- Estimate how much money you need, taking into account the purchase price, whether the property needs any renovations and any other expenses
2. Find a lender
- Look for reputable hard money lenders who lend in California
- Speak with the lender and ask them about their experience with bridge loans
- Ask them what types of documentation they need to see
3. Prepare your documentation
- Gather all relevant documentation about the property being used as collateral
- Provide any financial documents such as bank statements
- Prepare your exit strategy to show the lender how you intend to repay the loan
Submit your loan scenario to Marquee Funding Group
Marquee Funding Group is a tight-knit group of experienced, highly trained hard money lending experts.
We have funded over $3.1 billion in loans over 14 years in business, and lend across all 50 states.
The Marquee difference:
- Flexible loan products
- Competitive pricing
- Personalized service
- Common-sense underwriting
- Faster than institutional lenders
Looking for a California bridge loan?
Submit your loan scenario today with Marquee Funding Group.