A bridge loan is a short-term loan intended to provide financing until a borrower secures permanent, long-term financing for their real estate investment. Bridge loans are used during the gap between purchasing a property and selling a previous one, providing the borrower with added flexibility. Bridge loans can also be referred to as bridge financing, gap financing, interim financing, or swing financing.
Continue reading for a breakdown of how bridge loans work including uses for bridge loans, interest rates, and more.
How does a bridge loan work?
Usually easier to qualify for and quicker to secure than a traditional, long-term mortgage, bridge loans rely less on the borrower’s finances and more on the asset being financed.
While some lenders require credit checks and proof of income to issue a bridge loan, hard money lenders issue bridge loans based on the equity of the collateral.
Loan Ranger Capital is a local hard money lender, so our bridge loans are always based on the value of the asset.
What are bridge loans used for?
Bridge loans are common in both residential and commercial real estate investments, typically taken out by business owners, professionals, and homebuyers. Bridge loans are used to fund several real estate situations while long-term funding is being approved including securing large purchases, covering expenses, funding closing costs, and more.
How much do bridge loans cost?
Fees to obtain a bridge loan are different for each lender, but the fees are typically higher than fees associated with a long-term loan. Common bridge loan fees include the following:
- Administration fees
- Appraisal fees
- Closing costs
- Escrow
- Notary fees
- Origination fee
- Title fees
- Wiring fees
It’s important to ask your lender about any fees that will be associated with your bridge loan before making a decision.
Do bridge loans have higher interest rates?
Bridge loan interest rates vary by lender, but in general the rates are significantly higher than standard mortgage loans. This is because bridge loans are short-term loans, which means the lender has a smaller time frame to make a return on their investment.
Do you need a deposit for a bridge loan?
Most lenders will not require either a downpayment or a deposit to secure a bridge loan. Here at Loan Ranger Capital, you’ll instead need at least 20% equity in your existing primary residence.
How long do bridge loans last?
Bridge loan terms typically last one year, but some can last up to at least three years. Most bridge financing lenders do not charge prepayment penalties. It’s common for borrowers to pay off their bridge loan with money from the sale of their current property.
Bridge Loan Hard Money Lenders in Texas and Tennessee
As a leader in Texas and Tennessee hard money loans, Loan Ranger Capital is here to meet all of your private lending needs. We have a range of bridge loan options available – and we’ll respond to your request within 24 hours. Our goal is to make the hard money lending process as simple as possible and we’d love to help you succeed. Contact us to learn more or get started with our online application.