Bridge loan lenders are less concerned with the credit worthiness of the borrower since the bridge loan is secured by property. This is beneficial for borrowers who may currently have less than ideal credit but have equity in property.
Bridge loans have lower loan to value (LTV) ratios than traditional mortgages obtained from banks in order to protect the lender from a borrower defaulting. The bridge loan lender will generally only allow for a loan to value ratio of 70-90%. The loan amounts available for a bridge loan can range from a relatively small amount of $25,000 to a jumbo bridge loan in the millions of dollars. The borrower may sell the property or arrange other long-term financing in order to pay off the bridge loan.
Residential bridge loans and commercial bridge loans are both gaining popularity as a way to quickly acquire cash in order to take advantage of short-term real estate opportunities. Commercial bridge loans generally have a lower LTV than residential bridge loans and the bridge loan lenders will require additional information and documentation.
A bridge loan may also be called a bridging loan, gap financing, interim financing or a swing loan.
An example of a traditional bridge loan would be when an investor owns a property and wishes to purchase a new property. The investor doesn’t have sufficient funds to purchase the new property but needs to secure the new property before selling the existing property. The investor is able to use bridge loan financing to borrower against the property they already own to raise funds for the purchase of the new property.
Once the new property is purchased, the investor can sell their original property and pay off the bridge loan. The bridge loan “bridges the gap” between the purchase of the new property and the sale of the existing property.
Onyx is an experienced hard money bridge loan lender. Contact us now to see how we can help you with your real estate financing needs.