Questions? 800-668-1004

The Ins and Outs of Bridge Loan Financing

Are you looking for a bridge loan to help fund a new home purchase, remodel, or another real estate investment opportunity? If so, you must take the proper steps to secure a successful financial journey.

A bridge loan is a temporary financing solution with a short term – typically ranging from a few weeks to a few years – that is secured by collateral, such as real estate. It provides a source of funding until a person can secure permanent financing, or an existing debt obligation can be met and removed.

This blog post will discuss how a bridge loan can help empower real estate investors. A short-term loan can be a great financing tool that closes faster than a personal loan or conventional mortgage.

Let’s look at bridge loans, how they work, their benefits and drawbacks, and the terms of RBI Private Lending’s bridge loan product. It should help give you a better understanding of when a bridge loan is a viable financing option and why you should turn to RBI should the time arise for this kind of temporary funding solution.

What Does a Bridge Loan Do?

Bridge loans can be most useful in competitive real estate markets where buyers often need to move quickly to secure a new property. However, they come with higher interest rates and fees than traditional home loans due to their short-term nature and associated risk. Hence, they should be considered carefully, keeping in mind one’s financial situation. Typically, they are structured so that your monthly payments cover interest only and have a balloon payment at maturity, or when you sell your original property.

At RBI, our bridge loans support the purchase of a variety of property types:

  • Condominiums
  • Single-family residences
  • Two to four units
  • Multi-family homes
  • Townhouses
  • Condos and hotels
  • Other property types are on a case-by-case basis

Bridge Loan Terms and Repayment Structure

The exact terms, conditions, and qualifications associated with bridge loans can significantly differ by lender and from transaction to transaction based on the borrower’s qualifications. That said, due to the short-term nature of bridge loans and their perceived higher risk, they typically come with higher interest rates and fees. As such, prospective borrowers should consult with financial advisors or lending professionals to understand the details and implications of a bridge loan.

RBI’s bridge loan terms are as follows:

  • Max Loan Amount: $10,000,000
  • Max LTV (Loan to Value): 70%
  • Rate: Starting at 9.99%
  • Term of loan: 12-24 months
  • Payments: Monthly Interest Payments with
    Balloon at Maturity
  • Prepayment penalty: None

We are usually able to close bridge loans in 5-10 days. And these loans typically have interest-only payments.

When to Use a Bridge Loan

The most common reasons for considering a residential bridge loan include:

  • To buy a property but time is needed to arrange financing
  • To buy a distressed property at a discount and financing is needed to close the deal quickly
  • To take advantage of a short-term opportunity, such as a property that is about to be sold at an auction
  • To buy a property but time is needed to repair or renovate it before refinancing
  • To buy a property but the seller will only accept cash
  • To buy a property in order to sell it quickly for a profit 

Pros and Cons of Bridge Loans

Like all other financing options, bridge loans have several advantages and disadvantages. Let’s consider the pros and cons associated with this type of borrowing.

Advantages:

  • Quick access to funds for time-sensitive transactions
  • Ability to make an offer on a property without a contingency
  • Flexibility in loan terms and requirements such as interest-only payments, or payments that are deferred until you sell
  • Potential for higher returns on investment
  • Ability to avoid the need for private mortgage insurance with a higher down payment
  • Quicker to close than traditional loans
  • Allows homeowners and real estate investors to finance larger purchases like a new home or apartment complex without draining their bank accounts and putting long-term investments at risk

Disadvantages and risks:

  • Higher interest rates and fees
  • A minimum home equity requirement
  • Short-term nature
  • Market fluctuations
  • Unexpected obstacles such as having trouble selling your current property

There are some situations where real estate investors will want or need to buy before they sell, meaning they don’t have the profit from the sale to use for the next project’s down payment. In the meantime, a bridge loan can provide the cash you need to purchase a property. But be sure to weigh the pros and cons before making a decision.

Talk to the professionals at RBI Private Lending to help you make the best financial decision and discuss the next steps for your bridge loan application. For more information, contact us today.

Recent Posts

Submited

Succes! We’ve captured your request. 

You will receive a response from management shortly.

Payoff and Partial Release Request

Please fill out the following information to request a payoff or partial release of your loan

In order to process your request, please download the required authorization form from [link]

Request Draw

Disclaimer: "By providing my phone number to “ RBI Private Lending, ”, I agree and acknowledge that “ RBI Private Lending,” may send text messages to my wireless phone number for any purpose. Message and data rates may apply. Message frequency will vary, and you will be able to Opt-out by replying “STOP”. For more information on how your data will be handled please see our Privacy policy here