Bridge Loans - A Viable Financial Solution
Oct 06, 2016
While every property has a price, the value of it depends on the owner and what they are able to do with it. Those who invest in commercial real estate on a regular basis are well aware of this. They may own a building that used to be perfect for their business, but circumstances arose where it needed to be sold. Since waiting for the first property to sell isn’t always practical, many people turn to bridge loans as a way to make these transactions work and to continue to move forward in their business.
What is a Bridge Loan?
A bridge loan is similar to a hard money loan, the term hard money means its fast money for borrowers that don’t qualify for conventional financing usually, hard money loans are issued by private investors or companies. The Interest rates associated with bridge loans are typically higher with hard money lenders compared to those rate offered by conventional commercial or residential property lenders. This is because of the higher risk that is taken by a hard money lender with providing a loan to a borrower with a less-than-perfect credit history or a property that is not maintained or stabilized. Most hard money loans are used for projects lasting from a few months to a few years. Bridge loan costs for the borrowers are similar to hard money loan costs. The primary difference is that a bridge loan, often refers to as a commercial or investment property, may be in transition and does not yet qualify for traditional financing. Whereas hard money loans can generally be for a property in any stage of being. Because it is based on existing assets, rather than a person’s or business’s credit worthiness, like with traditional bank loans, it’s meant to create a financial bridge between when a new property is bought and an old property is sold. Since you still own the old property, it can be used as collateral against the loan for the new property. Once it sells, the loan can be paid off.
The qualifying criteria for a hard money loan vary widely by lender and loan purpose. Credit scores, income, and other conventional lending criteria may be analyzed. However, most hard money lenders primarily qualify a loan amount based on the value of the real estate being collateralized. Typically, the biggest loan one can expect would be between 65% and 75% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000 – $70,000 against it. This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay on the loan and they have to foreclose on the property.
A Short Term Financing Solution
Buying and selling commercial property is different from purchasing your family’s home where you live. You don’t need a 30-year mortgage. You just need a little time for the commercial property to show its potential. That’s where a commercial hard money lender comes in.
Terms for bridge loans are typically 1-3 years, and while interest rates are higher than a 30-year mortgage, they are competitive. The loans are based on the value of the real estate this can be up to 65%. In many cases, it can cover the actual price of the new property.
Fast Processing and Clear Expectations
A reputable hard money lender will have clear criteria for what types of investment properties qualify for one of their loans, which are typically between $250K and $5 million dollars. The property being bought or refinanced should fit in with one of these scenarios.
- A residential building for 1-4 households, and owned by a corporation or LLC
- Mixed use
- Apartment buildings
- Office buildings
- And other types of commercial real-estate
Contact Riverdale Funding for Your Bridge Loan
Whether you are looking for a one-time bridge loan, or are a business that regularly invests in commercial real estate, Riverdale Funding, LLC may be able to offer the financial solution you are looking for. Riverdale Funding, LLC is a hard money lender with a long history of professionalism and service. Call us at 888-368-4983 or apply online.