Bridge Loans For Investment Properties Lending Guidelines

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Bridge Loans For Investment Properties Lending Guidelines

This BLOG On Bridge Loans For Investment Properties Lending Guidelines Was UPDATED On November 24th, 2018

Hard money bridge loans is a great tool for real estate investors.

  • Even investors with great financials and those who can qualify for traditional bankable commercial loans utilize hard money bridge loans in many cases
  • Short term hard money loans is often used when real estate investors purchase commercial and/or investment properties that need stabilization

Benefits Of Investment Bridge Loans For Real Estate Investors

Here is how investors use hard money commercial bridge loans:

  • To purchase fix and flip properties
  • Investors buying foreclosures
  • To purchase empty vacant apartment building with no rental income
  • To purchase vacant boarded up homes in need of rehab
  • To purchase vacant office buildings in need of rehab
  • To purchase abandoned properties in need of rehab

How Are Bridge Loans Used By Investors

Investors use short term hard money bridge loans to do the following:

  • To purchase the property
  • To rehab the property

After investors are done rehabbing and stabilizing the property with their short term hard money bridge loans, they do the following:

  • After completion of the rehab, whether it is a single family home, apartment building, office complex, the investor can sell it and/or
  • Get tenants in with leases and
  • Refinance it to a long term commercial loan or
  • Sell it for a profit

Bridge loans are used for interim financing and used due to the following:

  • No pre-payment penalties for paying off the loan early
  • Fast closings
  • Most hard money bridge loans can close in two to three weeks
  • Little documentation required

Residential Bridge Loans

There are two types of bridge loans:

  • Residential Bridge Financing
  • Commercial Bridge Financing

Reasons for residential bridge financing is to purchase a new home prior to selling an exiting home.

  • A buyer of a new home need down payment and closing costs on a home purchase
  • If they are exiting an existing home and that home has a lot of equity and cannot come up with a down payment for another property purchase, the borrower can get a bridge loan on the existing property for the down payment for the next property purchase

Here is how homeowners can get bridge loan financing with an exiting home to get the down payment funds to purchase the second home:

  • Get a HELOC, Home Equity Line Of Credit
  • Get a Bridge Loan 
  • Short Term Private Money Lenders normally do not want to be in second position
  • They would normally pay off the first mortgage and get you a new loan
  • Homeowners can get the balance of the funds after paying the first position lender off
  • Homeowners who are exiting their existing home can get short term bridge financing as an investment property and keep it as a rental for a few years prior to selling it
  • This is a good idea on areas where real estate prices are hot
  • Great benefits of bridge loans is when a home buyer makes a real estate purchase offer with no finance contingency
  • Needs quick financing or is making an offer on a property that is hot and under market and sellers want no finance contingencies

Residential Bridge Loans Versus HELOC

HELOC’s or second mortgages are much less expensive and have much lower rates than short term bridge loans.

  • However, there are much more paperwork and takes more time in closing a HELOC than bridge loans
  • Borrowers need to weigh the pros and cons on the type of bridge financing they need, the purpose, and the costs involved

Benefits Of Bridge Financing

Bridge Financing is not for everyone. Bridge Financing can be beneficial for borrowers who are non-bankable and the following:

  • Recent bankruptcy, short sale, deed in lieu of foreclosure, or standard foreclosure
  • Borrowers with bad credit and low credit scores who need time to restore their credit and boost their credit scores
  • Real Estate Investors who need fast cash and quick closing due to hot properties
  • Investors who qualify for traditional investment property loans but do not want long term financing due to pre-payment penalty
  • Property Flippers who do not need long term financing
  • Investors who need a long term low interest rate mortgage after rehabbing and stabilizing the property

Bridge Loans are short term financing that is used to bridge the gap between the existing condition of the property and after improved value of the property.

Loan Programs

Gustan Cho Associates Mortgage Group is a one stop lending shop. We offer residential and commercial financing in most of the 50 states.

Here are the loan programs available:

  • Residential FHA Loans, Conventional Loans, Jumbo Mortgages with no lender overlays
  • Hard Money Loans
  • Short Term Private Money Loans
  • Fix And Flip Rehab Loans
  • Rental Income And Investment Property Loans
  • Bridge Loans
  • Accounts Receivables Financing
  • Equipment Leasing Financing
  • Non-QM Loans: No waiting period after bankruptcy and/or foreclosure
  • Bank Statement Loans
  • Second Home Financing
  • Non-Warrantable Mortgages
  • Condotel Financing

How Do Real Estate Investors Qualify For Bridge Lending

Bridge Lending is a type of hard money and/or private money lending. Most short term bridge lenders are not too concerned with borrowers but more on the property. The property is underwritten and the main security to the lender is the equity of the property.

Here is what hard money bridge lenders look at when underwriting Bridge Loans:

  • Loan To Value:
    • Most bridge lenders want 20% to 40% down payment
  • The amount of down payment required depends on the strength of the borrower
  • The lower the borrower’s credit scores and credit profile, the higher amount of down payment is required and the higher the interest rate
  • Borrowers with bad credit and no income can qualify for short term hard money loans as long as they can come up with the down payment
  • There are no set mortgage guidelines on short term hard money bridge financing
  • It is based on a make-sense case by case scenario type of underwriting approach

Costs And Fees For Short Term Investment Property Loans

There are fess and costs involved for short term investment property loans.

  • Interest rates depends on the amount of down payment the real estate investor puts down and the type of property
  • Lenders will charge higher interest rates on investment property loans on properties and borrowers who they deem higher risk

Risk factors is assessed by the following:

  • Type of property:
    • Single family homes and apartment buildings are the safest and have the lowest interest rates
  • Office complexes and strip malls are considered riskier
  • Gas stations are higher risk
  • Liquidity:
    • Lenders will assess in the event borrowers default, how fast will the property sell 

Typical Charges On Short Term Hard Money Loans

Fess and costs of short term financing can be expensive.

Here are typical charges that investors may be charged:

  • Origination Fees
  • Points
  • Administration Fees
  • Appraisal Fees
  • Due Diligence Fees
  • Escrow Fees
  • Title Policy Fees
  • Notary Fees
  • Recording Fees
  • Wire Fees
  • Courier Fees
  • Draw Fees

Real Estate Investors who have more questions on short term hard money bridge financing, please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Borrowers can also email us at gcho@gustancho.com. Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays to take calls and answer any questions. We are residential, commercial, and alternative financing advisors and lenders.

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