Want to invest in new properties and diversify your portfolio? Bridge loans are the ideal financing options to go for. However, you might find them a bit confusing as these include a fast-paced transaction.
To help make things a little smoother for yourself, go over this beginner’s guide to learn what bridge loans are and how you can use them as a tool to invest in more properties.
What Is A Bridge Loan?
Bridge loans, also known as hard money loans, are a type of short-term loan (STL) used for remortgaging, renovating, or buying a property. They usually have higher closing fees and interest rates than regular loans.
How Long Is A Bridge Loan Granted For?
Bridge loans need to be paid back in 12 months or less. It’s a temporary but quick source of cash to fund your investment activities when you’re short on finances.
How Many Types Of Bridge Loans Are There?
There are two types of bridge loans: loan-to-cost 0 and after-repair-value bridge loans.
In loan-to-cost (LTC) bridge loans, the loan value is a percentage of your total required amount. It’s usually between 70-85% of the total costs.
For example, you want to acquire a property costing $500,000 and need an additional $50,000 for its renovation, making a total cost of $550,000. The lender will offer you 75% of $550,000, which means a loan of $412,500, the remaining $137,500 is the amount you’ll have to fund yourself.
In after-repair-value (ARV) bridge loans, the hard money loan amount is usually 70-80% of the selling price of the property you want to invest in.
For example, if you buy a property at $500,000 and need $50,000 for refurbishment so that it sells for $750,000, then you’ll get 70% of the selling price ($750,000) as a loan. This means you’ll get a loan of $525,000, and you’ll only have to add $25,000 of your own money for the project.
With more than 75 years of experience, we’ve rightfully owned the title of the leading commercial hard money lender in the market. We assist you in meeting your financial objectives by offering commercial hard money loan consultation.
Contact us now to get started.