Bridge Loan

Last Updated: 03/24/2024

Loan Highlights

  • Homebuyers who need short-term financing to purchase a new home before selling their existing one.
  • Investors looking to acquire or renovate properties quickly.
  • Borrowers with strong credit and substantial home equity who need temporary funds to bridge the gap between buying and selling properties.
  • Bridge Loans provide flexibility and speed in real estate transactions, allowing borrowers to seize opportunities without waiting for a traditional mortgage approval.
  • Suitable for homebuyers who need to move quickly in competitive markets or investors looking to renovate and flip properties.
  • Ranges from $50,000 to several million dollars, depending on borrower qualifications and property value.

Interest Rate Estimate

10-12% Market Standard (strongly resistance to market change and index adjustment). Significantly dependent on risk tolerance of the direct lenders.
*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:
  • 740 FICO score
  • 30 years fixed interest rate
  • primary residence
  • single family house

Terms and Breakdown:

  • Short-term loan with terms typically ranging from a few weeks to 12 months.
  • Higher interest rates and fees compared to traditional mortgages.
  • Interest-only payments during the loan term, with the principal typically due in a lump sum at the end of the loan term.
  • Can be used for both residential and commercial properties.

Requirements:

  • Strong credit history and credit score typically required.
  • Substantial equity in the existing property or a significant down payment for the new property.
  • Clear exit strategy: Borrowers must demonstrate how they will repay the loan, typically through the sale of the existing property or permanent financing.
  • Property appraisal may be required for both properties involved in the transaction.
  • Documentation:
    • Typical Documents: Typically full documentation (full docs) including pay stubs, tax returns, W-2 forms, bank statements, and proof of assets.
    • Additionally, documentation related to the properties involved, such as purchase contracts, property appraisals, and renovation plans, may be required.

Derivative or Related Products:

  • Hard Money Loans: Similar to Bridge Loans, hard money loans provide short-term financing based on the value of the property rather than the borrower's creditworthiness.
  • Home Equity Line of Credit (HELOC): Allows homeowners to borrow against the equity in their homes for short-term financing needs.

Funder and Sponsors:

  • Bridge Loans may be offered by banks, credit unions, private lenders, or specialized bridge loan lenders.

Notes:

  • Common misunderstandings with Bridge Loans include:
    • Higher costs: Bridge Loans typically come with higher interest rates and fees compared to traditional mortgages due to the short-term nature and higher risk for lenders.
    • Limited availability: Bridge Loans may have stricter qualification requirements and may not be available from all lenders, requiring borrowers to shop around for suitable options.
    • Exit strategy planning: Borrowers should have a clear plan for how they will repay the loan at the end of the term, such as through the sale of the existing property or permanent financing. Failure to do so could result in financial strain or the need to refinance the loan.