Bridge Loan Options & Bridge Financing Rates
A bridge loan can serve multiple purposes for both businesses and individuals alike. When a home buyer purchases a new home before selling a current one, real estate bridge loans “bridge the gap” between the new mortgage and the sale of your current home. For companies, it can be used to inject immediate cash to pay the bills needed to stay afloat.
Whatever the purpose may be, the Halo Capital Group can help. We understand the complexities of running a business and purchasing a new property. As a result, we provide our clients with simplified and flexible options catered to their individual needs. For more information, fill out the form to the right and a loan specialist will contact you to discuss your options for getting funded.
What is a Bridge Loan For Real Estate?
If you are currently asking yourself, “What is a bridge loan for real estate?” you might very well be in the process of buying a new home, new business location and/or investing in a new property. The good news is that this concept, at it’s core, is very simple. Bridge loans for real estate are short-term financing methods used to “bridge” a financial gap to help cover the down payment of a second residence by using the equity in your current residence as collateral. These types of financing arrangements allow real estate owners flexibility in the lag time between the purchase of one home and the sale of another.
Homeowners Bridge Loan Rates and the Term of a Such a Loan
A typical bridge financing agreement has a six month term. Some extend as long as 12 months to three years in some cases. Bridge loan interest rates are roughly two percent above average fixed-rate products. The experience and quality of sponsorship, cash flow (or the lack of it), location, and time needed are factors considered in determining the interest rate. Closing costs are equally as high.
Repayment of the loan is typically used with the proceeds from the sale of the first residence. In addition, there is a percentage limit on how much you can take out against the equity of your current home. Typically, this percentage falls between 75 and 80 percent.
Typical Real Estate Bridge Financing Agreement
A bridge loan agreement is a legal, governing agreement between the borrower and the financier. It contains standard clauses. Additional conditions are customizable options that fit the borrower’s needs. Common items contained in the document include notice of borrowing, loan amount, compliance with laws, fees, interest rates, payment obligations, taxes, debt and fixed charge coverage, and an unconditional guarantee.
Short Term Bridge Financing for Real Estate Investors
Property investors can take advantage of short term bridge loans for a variety of situations. Short term bridge financing comes with any number of options and structures, such as financing private equity and real estate development purchases. Since these loans are often customizable to the borrower’s individual needs, seasoned professionals can serve as a valuable asset to help navigate this seemingly confusing territory. They work with lending companies to provide favorable investment conditions for their clients. Time sensitive situations frequently spark the need for experienced and knowledgeable financial advisers to provide fast and valuable insights into all of the options available.
Utilizing Bridge Finance Services During a Market Launch
In the business world, bridge financing is a method a company often uses before a market launch to maintain operational cashflow. The design of bridge finance is meant as coverage for market launching expenses until companies revenue streams grow.
In the event of an IPO, cash raised by the offering immediately pays off the debt liability upon completion of the original public offering, A bridge finance group usually supplies the funds. As payment, the borrower gives stock shares, at a discounted price that offsets the loan. In essence, the shares are forwarded payment for sales in the future.
How Do Equity Bridge Lenders Operate?
A bridge lender is one of the direct lenders who have no requirements that tie their hands (unlike traditional or outside investors). There is no cookie cutter criteria such as FICO minimums or debt-to-income ratios. They consider innovative and unusual types of positions, liens and collateral to secure loans. Having real estate is the main requirement to attain equity bridge capital. Red tape places no constraints on loan creativity and loan closures can occur in as little as days.
How Construction Bridge Loan Companies Work
Companies offering construction bridge loans make constructing a new home easier financially. In the event construction completion occurs prior to the expiration date of the loan, two options are available. The payments continue until the loan term ends, when the borrower then, refinances. The other option is to refinance upon construction completion. It is worth noting, the lender is under no obligation to refinance the loan.
Pre-qualification and getting funded are subject to acceptable appraisal, credit approval, or both. Borrowers often carry property insurance to secure the loan. At times, flood insurance is a requirement. Taxes and additional conditions imposed by a city, county, or state are the borrower’s responsibility and play an integral role. Conditions are subject to change without notice.
What Are Hard Money Bridge Loans Used For?
In hard money financing, a borrower receives money based on a specific property parcel’s value. The amount is normally between 50 to 70 percent of the current value. Typically, the issuance is at a higher interest rate than conventional loans for real estate. Hard money loans may signify distressed situations such as foreclosure proceedings, bankruptcy, or an existing mortgage being in arrears. Hard money lenders provide equity bridge funds in these types of situations.
Bridge Lending & Financial Agreements Based on Quick Sale Value
A key aspect of bridge lending is that only 50 to 60 percent of the quick sale value is available for funding. As an example, a $1 million property has a quick sale value of $700,000. The loan amount is between $350,000 and $420,000. The money is secured by a first mortgage on the property the loan is meant to benefit. Any other property with substantial equity is usable as additional collateral. Equity bridge lenders want to be comfortable with the risk they are taking by fronting you money, but with such valuable collateral involved, they are much more willing to lend it to you.
To see how much money you qualify for, fill out the simply form to the right. To learn more about our working capital loans, visit this page.