Real Estate Bridge Loans

Many real estate investors are familiar with real estate bridge loans, but if you are new to the world of real estate you may not be familiar with this type of loan. A bridge loan is short-term, and provides credit to the borrower with high interest. The name describes the main purpose of the loan, to create a bridge for the borrower until more stable financing is acquired. Venture capitalists and real estate investors often utilize bridge loans. Not every bank offers this type of loan, because it is seen by many lenders as a high risk proposition, as a large sum of money is loaned for a short period of time.

There are certain advantages offered by a bridge loan depending on your situation. If you are speculating on a piece of property, you might use a real estate bridge loan to buy the property while you are awaiting more permanent financing with better terms and rates. Although buying real estate isn’t the sole purpose for bridge loans it is the most common. Some people might use a bridge loan to buy a vehicle they plan to pay off in a matter of months.

Real estate bridge loans provide an immediate source of capital, which can be a useful thing for an investor or speculator. The length one of these loans is held can vary. Some bridge loans may only span a few weeks, others may span a few years. Most often, the borrower is required to give collateral to secure the loan. Collateral might be the title to a real estate property or vehicle. There may also be origination fees for the loan that are higher than the usual as compared to traditional loans.

Lenders look at real estate bridge loans as high-risk because there are cases where the borrower cannot repay the loan. This is when the collateral would be seized and used to cover the amount borrowed. Large banks and hard money lenders are the places where you will find bridge loans available. For borrowers, bridge loans can also be risky. The borrower should weigh all the loan terms and their own financial conditions carefully before choosing this option. Even paying late can result in hefty penalties. So if you are applying for a bridge loan or talking to a loan officer about doing so, make sure you understand all the details.

Swing financing is another term used to describe bridge loans. Before signing on the dotted line, you should make certain you have the funds to cover the loan. If not, consider alternate forms of financing like a home equity loan. Home equity loans are offered at lower interest rates than bridge loans and are longer in term. In some cases a home equity loan may be the better option if you own a home that does have equity accumulated and need to access a large sum of money for an investment property.

If you are a real estate investor, speculator or venture capitalist, research as much as you can about bridge loans and what they mean for your finances. For some, a bridge loan is the perfect short-term solution to get them through until they are able to sell a property or obtain better financing. For others, a bridge loan is not the best course of action. A financial advisor can help you decide the best way to raise capital for your real estate investment costs. They can also tell you more about bridge loans and how this type of loan would affect you financially and what your obligations as the borrower would be.