5 Things You Must Know About Bridge Loans
Bridge loans are often misunderstood. This funding option for real estate investors is utilized by only the savvy, which doesn’t have to be the case. It’s not as difficult as you might think to get this type of loan. In fact, what’s stopped you in the past will likely be dispelled if you keep reading. Here are five things you should know about bridge financing.
- You’ll Likely Get Funded
Many people assume they will not be approved. Even though the economy continues to rebound, there’s a mistaken assumption that the credit environment remains hostile. The beauty of this alternative funding is your credit isn’t the first consideration. You’re backing up the loan with the property you wish to purchase, and if the lender feels it’s a good investment, you’ll receive financing.
- You’re Afraid of Pre-payment Penalties
Many traditional loans carry hefty pre-payment penalties because the financial institution doesn’t want to lose the additional interest on the loan. Few bridge loans carry pre-payment penalties. This financing is paid back within a short duration, so the lender isn’t worried too much about years of interest. Check with the lender first, but chances are you won’t be penalized if you want to remit your loan early.
- They Carry Excessive Fees
This is another misconception and if you work with the wrong lender, you might be surprised at the fees. You can find bridge loans that assess fees totaling less than 2 percent of the actual loan, however. If you do that math, that’s no more than traditional funding. Discuss the loan with the financer in detail and make certain you understand all fees. If you do so, you’ll likely find one that won’t take you to the cleaners.
- They Won’t Lend Large Amounts
In today’s hot real estate market, many bridge financers are issuing huge chunks of change – upward of $50 million in some deals. Today’s funding can be as much as 75 percent of the property’s overall value, which means you can get your hands on a large amount of much-needed cash. This alternative financing is changing with the times, which works well for you as your portfolio will grow with larger investment properties.
- Won’t Lend for Undeveloped Land
Finally, some bridge loans will cover undeveloped land. To get the U.S. out of the Great Recession, the federal government issued many stimulus packages designed to develop land. The bridge funding industry has jumped on board and some lenders will consider funding the undeveloped property you wish to purchase.