Bridge Loans: How Do They Work?

On average, Americans have $38,000 in debt.

Sometimes, milestones in life can cost more than what we’re earning, and these milestones are time-sensitive as well. Without additional financial assistance, we’d never get ahead in life.

So you may be weighing your options when it comes to loans. One type you might be looking at, is bridge loans.

If you’re wondering about bridge loans and how they work, then you’re in the right place. In this article, we’ll give you all the important details so you can figure out if it’s the right loan for you.

What Are Bridge Loans?

As the name suggests, bridge loans are short-term loans intended to “bridge” the gap between two things. More specifically, this type of loan is used mainly for ibuying investment properties.

Bridge Loans are also called Hard Money Loans.

When you’re buying an investment home, you’re dealing with large amounts of cash, especially so if you’re selling your current house as well. You can only hope and pray that everything goes smoothly; otherwise, you might be financially strapped.

A great way to ensure you can cover the costs of your new house is to take out a bridge loan. Obviously, this will give you more cash to work with, and if the sale of your old home doesn’t happen, or doesn’t occur as quickly as you’d like, then you at least still have some money to put towards the new house.

How Do Bridge Loans Work?

If you’re already a homeowner, then you’re probably counting on the money made from selling your old home to fund your new one. But that’s only going to work out for you if the closing dates align.

Are you worried about them not doing so? Or do you already know that’s not going to happen? Then a bridge loan can get you through.

A bridge loan gives you temporary cash to offer a seller, so you can secure that new investment dream home of yours.

Usually, the maximum you can borrow for a bridge loan is 90% of the purchase price. However, some lenders may have other standards.

Bridge Loans Information

Remember: bridge loans are short-term, temporary loans. So their repayment terms are much shorter than with other loans.

Typically, you’ll get around 12 months to repay the entire bridge loan. Some lenders may have even shorter repayment terms. Some hard money lenders don’t have pre-payment penalties.

If you’re counting on paying back the loan with the money you make from selling your old home, then it shouldn’t be a problem for repayment, as you’ll be able to do so right after you get the cash.

But some homebuyers choose to pay their bridge loans back in other ways. One popular repayment method is a balloon payment; this is where you pay the full amount on a certain date.

Benefits of Bridge Loans

One of the biggest benefits of bridge loans is that you can use it on an offer for your dream house without needing a financing contingency. 

A financing contingency usually works in your favor. But for the seller, the fewer contingencies, the better.

So if you don’t have one with your offer, this makes yours more attractive than all the other potential buyers’. This is because you have all the money they want and can close quickly with little to no issues.

Quick Approvals

Some loans take a while to be processed and approved. In the case of buying an investment home, many times, you can’t afford to wait.

Both the application process and closing of a bridge loan is shorter than other types of loans. That way, you can get quick funding when you want to snag your dream investment home. It can be a huge advantage if you want to secure it before you’re able to sell your old home.

Disadvantages of Bridge Loans

Although bridge loans can help you out in a pinch, they’re definitely not for everyone. As with all things in life, these loans do come with caveats.

For example, they’re more expensive than getting a home equity loan. This is because bridge loans come with higher interest rates.

Also, in most states, it is required to buy properties under an entity, such as an LLC, or corporation.

High Origination Fees

You’ll have to pay origination fees with most lenders, and you’ll usually have to pay them for other types of loans as well. But for bridge loans, the origination fees are usually higher than conventional loans.

Expect to pay as much as 4% of the loan value when you’re looking at bridge loans.

Get a Bridge Loan or Hard Money Loan Today

Now that you’ve learned all about bridge loans, hopefully, you should have enough information to determine whether or not it’s something beneficial for you.

If you’re looking to sell one of your properties but your funds for a new house are tied up with it, then a bridge loan can be a great way for you to snatch up any good opportunities. But do be aware that they do come with higher interest rates and origination fees, and have a shorter repayment term.

So long as you’re aware of all the pros and cons of bridge loans, then it may be a good idea to explore if you’re planning on both selling and buying an investment home soon.

Have you decided that you need a bridge loan? Then apply for one now.

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7 Benefits of Using Hard Money Loans For Real Estate Investments

Regardless of what the infomercials say, you do need money to buy a home. Whether it comes from a conventional mortgage, a home equity line of credit (HELOC), or a generous parent or friend, you can’t show up to the closing table empty-handed.

We know buyers can find no money down programs, but they still need to secure financing. Also, lenders structure those programs primarily for people who intend to live in the homes they’re financing.

You’re an investor. You need loans for real estate investing—not another 30-year mortgage.

If you have your eye on an investment property but aren’t sure where you’ll get the money, this post is for you! Before you fill out a loan application at a bank or take out a second mortgage on your home, consider these 7 benefits of hard money loans.

1. They Say Yes When Others Say No

Do you know what the biggest challenge real estate investors face today? It’s getting the loan!

Banks and mortgage companies make investors jump through a series of seemingly impossible hoops before they underwrite a loan. They verify the investor’s income, check credit ratings, demand an appraisal, and an array of other procedures.

Traditional lenders deny roughly 10.8% of new mortgage applications.

When a bank says, “no thanks,” private money lenders for real estate, often say, “yes!” While they do want to make sure the loan amount is on par with the value of the property, they usually don’t consider credit in the same way a bank does.

2. Hard Money Is Fast Money

The key to successful real estate investing is the ability to move quickly.

Great real estate deals don’t stay on the market for long. To grab the best opportunities, an investor must bring a sense of urgency to the deal. Investors who can show the money, get the best deals.

Even investors with pristine credit can’t usually get funding from a bank in less than 30 days. If you’re applying for a mortgage during a high-volume month, you may wait 45-60 days.

By the time you get loan approval, another investor can sweep the seller off their feet, and sweeten the deal with cash and a quick closing.

Private real estate lenders can usually fund a loan in about one week. Since the main focus is whether investing in your project makes sense for their business, they tend to forego credit checks and some of the due diligence that holds up funding through a bank or mortgage company.

3. Excellent Negotiating Tool

Think about real estate transactions from the seller’s perspective. They list the property and deal with a revolving door of prospective buyers. Finally, they accept an offer, and then, they wait.

Their buyer usually goes through a traditional lender, which means a home inspection and an appraisal. Then, the buyer waits for loan approval. If the buyer can’t get financing, the seller goes back to square one.

You come along with a cash offer and a promise for a quick close. You’re in a position to negotiate a lower price, especially if you find a seller motivated to close as soon as possible.

4. You Can Borrow More

Remember when you bought your first home? Unless you met specific credit qualifications, you had to come up with a down payment. The bank limited the amount you could borrow, which also put some constraint on the homes you could even look consider buying.

To add insult to injury, you paid loan origination fees. Then, they tacked on private mortgage insurance (PMI).

Work with a hard money lender and the sky’s the limit—within reason, of course.

Generally, they prefer to with a loan-to-value (LTV) of around 75 percent. However, In some cases, a private real estate lender can loan the full price of the property. Furthermore, you won’t pay for PMI.

5. More Flexible Terms

Traditional lenders tend to follow the rules set in stone, especially if the loan product you qualify for is a government-backed loan.

Each private lender creates its own criteria. They also look at each real estate project on an individual basis. Unfortunately, in the bank’s eyes, you’re a number associated with a risk factor. They may not even understand the scope of your project or its value.

You should find fewer restrictions when you work with a hard money lender. If you need to tweak your project’s goals or timeline mid-project, they’ll allow that and work with you.

6. Hard Money and Leverage

You’ve likely talked to plenty of fix-and-fix investors who put every available dollar into an investment. This practice leaves nothing for the investor to work with if they need to fund repairs. It also means they risk missing out on new investment opportunities.

A hard money loan lets you invest in a project without tying up your own money. You’ll have cash on hand to continue pursuing other investment opportunities.

You’ll experience no more missed deals because of money tied up in other projects.

7. Opportunity to Build a Partnership

Many investors who work with a private lender for real estate projects are return clients.

If you pay your loan back in a timely fashion—or even pay it back early—you may find your lender is willing to work with you again on future investments. Sometimes your lender may offer more attractive terms or quicker funding for subsequent loans.

Go into the loan with the future in mind. There’s nothing like the financial backing and experience of a lender who you trust and who trusts you.

Interested in Loans for Real Estate Investing?

We’ve looked at several advantages of the partnership between hard money lenders and real estate investors. When you explore loans for real estate investing and choose a private lender, you’ll enjoy faster approval, more flexible terms, and leverage.

You’ll also forge a relationship with someone who can help you with future projects.

If you’re looking for a financial partner who works with you from start to finish, we’d love to talk with you. Contact us today, and let’s talk about your next real estate investment project.

 

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The Benefits of Hard Money Fix and Flip Loans

Flipping a property can be a profitable business if you set goals and stick to them. Popular shows on HGTV makes it look simple. In reality, there is a lot more to the process.

Once you find a property, you have to secure it quickly. Next, you’ll need to calculate how much it’s going to cost to rehab the house. Getting the work done is another aspect. The hardest part comes when it’s time to sell. You may find home valuations, at https://valuation.bhhsfloridaproperties.com/eserrano.

Rarely will a house sell within the first 10 days after being placed on the market. Fix and flip loans make it possible for the house flipper to move on to the next project.

How do people secure financing for house flipping? They use personal funds, money from a previous flip, bank loans or they find hard money or private investors.

Are you thinking about getting into the house flipping business and need a way to finance your projects? Keep reading to learn more about the benefits of using hard money lenders.

What are Fix and Flip Loans?

Fix and flip loans are lending opportunities geared towards rehab properties. There are several types of loans a borrower can apply for to rehab a home. Unfortunately, most are designed for people wanting to make the home their primary residence.

These include:

  • FHA 203(k) Loan (for a primary residence)
  • Fannie Mae HomeStyle Renovation Mortgage
  • Home Equity Loan

When it comes to rehabbing a home to sell for profit, these are the options:

  • Investor Line of Credit
  • Hard Money Rehab Loan

What is a Hard Money Lender?

The most common house flipping loans are Hard Money Loans. They are easier to qualify for because they are not issued through traditional banks.

In its simplest terms, a hard money lender is anyone outside of traditional banking that can loan money. This can be a family member, colleague, or a group of friends.

The term hard money typically applies to the terms of the loan which are less favorable than borrowing from a bank or someone you know. The benefit is, you’ll have access to people that can back a multi-million dollar project.

These loans are funded by private investors looking for a quick return. Unlike traditional lending institutions, the lender sets the requirements. They also do not require the same documents and can close on a loan in days, not months.

Locating a Lender

The process of connecting with a lender is easier than you think. Do an online search for a private investor or real estate investor. The search will return a list of companies that connect individuals with people looking to finance projects.

You’ll complete a basic online application requesting standard information such as who you are, the project type, and how much money you need to fund the project. After looking over the information, they’ll determine which investors are best suited for your needs.

If someone is interested in becoming your financial backer, the loan process will move to the next steps.

Terms and Conditions are Simple

The terms and conditions of the loan are set by the private investor. He or she has to assess the level of risk associated with each applicant seeking money for flipping houses.

Unlike FHA government-backed loans, the interest rates will be higher. Borrowers can expect to pay interest at a rate of 10% or higher. These loans do not have 30-year repayment plans.

Hard money lenders want to see a return in about six to 12 months. Depending on the scope of the project, you can secure a loan for up to 48 months.

If you are running into delays or the home doesn’t sell as quickly as you planned, hard money loans can be refinanced. Some restrictions place time limits on how soon a refinance can occur.

You Do Not Need Perfect Credit

Fix and flip loans using private investors are growing in popularity because you do not need perfect credit to secure a loan. The investors are more concerned with your ability to repay the money in the specified time frame.

Although credit scores are a factor they aren’t to the extent that a traditional bank will use it to deny a loan. Is it possible to get financing for flipping houses with a credit score below 600? Chances are you could.

The investor will look at past project successes, how long you’ve been in business and the current status of unpaid debts.

The Property is the Collateral

Private investors are not in the business of selling properties to recoup their money. Sometimes it is the only way to be made whole after a borrower reneges on a fix and flip loan.

One condition of a hard money loan is the property is used as collateral. If the terms of the loan are not met, the lender will secure the property and sell it.

For people relying on this type of financing, this can kill future financing opportunities.

Easy to Build a Business Relationship

Abiding by the terms of the loan is a great way to build a business relationship. Although you may never meet the person financing the project, you’ll be in good standing with the company that negotiated the loan.

When the lender sees you are looking for financing on a new project, it will be easy to get a yes.

No Need to Tie-up Your Personal Funds

This is the best part of using a private investor for your project. You’re not tying up your own money until the project is complete. You also don’t have to secure the loan with personal property. Your home and investments are safe.

Are You Ready to Locate Your First Property?

Fix and flip loans get you immediate access to money. Utilize the system to your advantage. Leave with a good reputation and the opportunity to take advantage of future lending.

Do you need money to get into the game? Click here to reach out to us with your questions about securing a hard money loan.

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