A Beginner’s Guide to Bridge Loans
Financing a property investment is no small task, but when you need to close quickly and your down payment capital is in hand, bridge loans provide a fast financing source that give you options as you develop your investment. Before applying for a private hard money loan to finance a new property purchase, it’s important you review your options. Different bridge loan packages provide very different features and benefits to investors.
Loans for House Flippers
Short-term investment in single-family homes bases its income model on quick improvements to bring a property up to the market cap for a neighborhood before reselling it. Most investors look to be in and out in six to twelve months, at most. As a result, the bridge loans marketed to home flippers tend to have options like lower down payments and shorter terms, with most programs maxing out at a year.
Property Rehab Loans
On the other end of the spectrum are hard money loans designed to help you renovate a property before refinancing it or selling it as a turnkey-ready commercial investment. They’re typically designed for higher value purchases like apartment buildings, retail spaces, and hotels. The LTV is lower on these loans, but interest rates are also generally lower and the terms are two to three years.
Flexible Cash Out Bridge Loans
The third common kind of bridge loan can be structured for up to three years or for as short a span as six months. They’re a little different from loans attached to a new purchase because the collateral is a property you already own, one with equity in it. The funds from financing with the loan are working capital you can use for any investment, whether it’s improving that property, buying another, or even starting a new business.
Common Features of Bridge Loan Programs
Regardless of the niche you choose for your next loan, private hard money loans for investors are built similarly in a few very important ways. Although the interest rates and terms may change, they’re still short-term loans with a maximum length of 36 months. They also tend to be in the 11-15% interest range for most investors, regardless of the individual loan term.
Investors with property investments that produce income and little liquid capital can sometimes use bridge loans for cash out financing to cover the down payment against a property purchase loan for flipping or rehabbing an investment. If that is an option you wish to explore, make sure you ask your prospective lenders about whether they support both types of bridge loans you’ll need.