Do you need a quick source of funding for a short period of time? If so, you’re probably considering getting a hard money or bridge loan from the best hard money lenders. Unlike a standard loan, a bridge loan is only meant to provide financial aid for a brief period. It’s perfect if you want to put money down quickly on a real estate investment and don’t have time to wait for a long-term loan. If you’re still wondering whether a bridge loan is right for you, here are a few frequently asked questions about this popular type of financing.
Q: Why Would Someone Need a Bridge Loan?
Bridge loan companies frequently offer bridge loans to borrowers who only want short-term financing (usually 6 months or less). Businesses or individuals who are waiting for other funding sources to be approved often apply for bridge loans when they need immediate, short-term capital. This type of loan is especially popular in real estate, where quick money is often required to purchase a good deal before the competition does. It is also a great solution for individuals who are buying a new home but have not yet sold their current home. Once the sale goes through or the long-term loan is approved, the borrower can pay off the bridge loan.
Q: What Are the Requirements for Getting Approved?
Different bridge loan companies have different requirements for approving loans. Some may require collateral while others may use credit history as the primary factor for loan approval. Lenders usually analyze the loan-to-value amount, current property value and after repair value before approving a borrower.
Q: Do Bridge Loans Have Limitations?
As with any loan, bridge loans do have some limitations. The most obvious one is the shorter period of time required to pay off the loan. If a borrower runs into delays with the sale of the current property, he or she may be able to apply for an extension. It’s important to note that a lender is never required to give the borrower an extension, but may choose to do so depending on the situation.
Q: What’s the Maximum Amount I Can Borrow?
The amount of money you qualify for depends on a variety of factors, including the value of the property in question, your credit history and the policies of the lender. In most cases, lenders will offer a maximum loan amount of up to 80% of the value of the collateral property. Fortunately, this amount is adequate for most borrowers because the loan is only meant to be a short-term solution while more permanent funding is secured.
Q: What Are the Advantages and Drawbacks of Bridge Loans?
One of the most notable advantages of bridge loans is that they make it possible to make purchases you might otherwise miss. It’s also easier to get approved for a bridge loan than a traditional loan. A few potential drawbacks of this type of loan include higher interest rates, shorter repayment periods and the possibility of having your home foreclosed on if you default on your loan.
If you still have questions about how bridge loans work, talk to the best hard money lenders in your area. They can help you understand if this type of loan is the right solution for your situation