Crossing the Bridge: Bridge Loans 101
Whether you’re a new real estate investor or a seasoned one, chances are you’ve done your homework to learn about the array of financing options available to you. Learning about each of the different loan options—and under what circumstances they would be ideal to pursue—is critical to ensuring as much success as possible in any real estate venture.
Among the many financing options available to investors is the bridge loan, solving the financing problem that arises when awaiting one property to sell while needing to buy another. As an immediate cash flow option, this loan helps—you guessed—bridge that gap between a sale and a purchase.
In this piece, we will quickly dive into why investors should consider bridge loans an excellent option, how they work, and what investors need to consider before applying for one.
Why They are Important for Real Estate Investors
Typically, with real estate investments, time is of the essence for making big decisions, and there isn’t always the luxury to sit around and wait for things—like a property selling quickly—to happen. Sometimes properties take longer to sell but that shouldn’t slow down your portfolio building and real estate business ventures. Bridge loans exist to meet the immediate cash flow needs to eliminate a cash crunch while buying and selling properties simultaneously.
So, you’ve fixed a property and put it on the market, but it hasn’t sold yet? You’re already eying another property that’s ready for the picking but you don’t have the cash to buy it without the other sale happening first? This would be the opportunity to consider a bridge loan as a viable option to keep your work moving forward.
How Bridge Loans Work
Bridge loans are typically a short-term financing option—often up to one year; at Temple View Capital, they come with an 18-month term—until a property sale is made and the loan can be paid back quickly. Also known as interim financing, these loans can: (1) roll the mortgages of two houses together, giving the buyer flexibility and breathing room, or (2) allow investors to hold two loans, borrowing the difference between a current loan balance and up to 80% of a property’s value.
At Temple View, bridge loans help you cover the gap between when your construction loan is due and when your long-term financing is complete. We underwrite your loan on the completed value of the project, so you won’t need to bring as much cash to the table or dilute your equity to get a loan closed. Whether you’re looking to buy a single-family, 1-4 units, condos, or townhomes, our bridge loans will help take you to the next step of your investment project.
What Do Investors Need to Know About Obtaining A BridgeLoan?
For getting out of a tight financial jam, bridge loans are extremely handy, but that convenience often comes with a slightly higher price tag. Bridge loans often carry a higher interest rate because lenders know the loan will be carried for a short period of time.
However, that level of convenience opens doorways for investors. Bridge loans typically have a faster application, approval, and funding process than traditional loans. Additionally, most do not have repayment penalties (if applying with TVC, you won’t face any red tape, income or asset verification, or require reservations to be eligible).
Lenders also often check on an investor’s debt-to-income ratio to ensure that they’re not swimming in debt and only taking more on.
Whether you’re quickly looking to close on a property, complete renovations to put one on the market, or need some breathing room while finding new tenants for your building, bridge loans offer the space and flexibility to achieve any one of these goals. Learn more about what you need for a bridge loan and how to partner with TVC.