Bridge Loans Help Those With Bad Credit
Oct 01, 2016
Managing finances isn’t something that comes easy for everyone, and sometimes a few mistakes are made along the way resulting in bad credit. In most cases, obtaining a loan relates directly to credit, but a bridge loan simply looks at the property value and the loan is granted based on that amount.
What Is A Bridge Loan?
A bridge loan, otherwise known as hard money, is a temporary loan that occurs while the borrower is carrying two mortgages at once. Since it is hard to predict exactly when a property will sell, or when the opportunity to grab just the right investment property is going to happen, this type of loan offers flexibility to pay the mortgage on the new property, while still keeping the mortgage lender of the old property satisfied until it sells.
It is a good option for those who have struggled with bad credit because the loan is backed by the value of the properties, rather than credit worthiness. These loans are not made by traditional banks, but instead are funded by a hard money lender who is more willing to take risks. Timed well, a hard money loan could help avoid bankruptcy or a foreclosure, and give property investors the opportunity to build on their commercial property investments.
When To Seek A Hard Money Loan
Real investment profits are more likely when a hard money lender is involved. To obtain a loan, the property needs to be a retail or industrial property, a family housing option that holds at least five family units, or be multiple non-owner occupied family properties owned by a corporation or LLC.
There are many scenarios that would lead you to seek a bridge loan from a hard money lender rather than borrowing from a traditional bank. In some cases, these loans when investing in real estate are necessary because you may not have the credit required to obtain a loan from the bank. In this case, taking out a bridge loan will benefit you because your credit is not an issue for you to qualify as it is for a traditional loan. Sometimes, it seems as if a bank is going to give you a loan, but backs out shortly before closing. Obtaining a bridge loan is faster than applying with another bank and can be the difference between going through with closing or having the property go to another buyer.
Converting apartments to condos may require a waiting period before the bank approves, and bridge loans can help during that period. Commercial investment properties often carry mortgages that include a large balloon payment when the mortgage matures. A hard money loan can give you the money you need to make this payment and keep your credit rating in check while you prepare to sell or refinance.