How to Secure a Bridge Loan
Regardless of whether you are a vetted real estate investor or looking to invest in your first property, you should consider your financing options beyond traditional bank loans. A great alternative financing option to consider is a bridge loan.
Bridge loans offer flexibility and speed for real estate investors looking to acquire new properties, refinance out of an existing loan, execute a 10-31 exchange, and more. In this article, we’ll explore the concepts of bridge loans in more detail, including a detailed outline of how you can secure a bridge loan for your next real estate investment.
What are Bridge Loans? How Do They Work?
Bridge loans allow investors to access immediate capital to bridge the gap in financing needs. This type of financing is a solution for investors ready to move quickly on a property while they secure permanent financing. Bridge loans can be funded in as little as 5 business days compared to traditional loans which can take months. By leveraging a bridge loan, investors can avoid the costs of a delayed acquisition and gain a competitive edge to move fast on prime real estate opportunities.
Bridge loans typically have higher interest rates due to their ability to provide quick access to capital, entailing a higher risk for lenders. However, they are not meant to be a long-term solution. Bridge loans typically have a 12-month term, so it is key to have an exit strategy in mind. Real estate investors can exit a bridge loan through these common strategies:
- Sale of property: Investors often plan to sell the property used as collateral for the bridge loan. Once the sale is completed, the proceeds are used to repay the bridge loan in full.
- Securing Permanent Financing: In some cases, bridge loans are utilized to secure a new property quickly until a long-term financing option becomes available. Once the long-term loan is approved, it will provide the necessary funds to pay off the bridge loan.
- Completion of a Project: If the bridge loan was used to finance renovations or development, the completion of these projects can increase the property’s value. Real estate investors can then either sell the property or refinance based on the improved value.
How to Secure a Bridge Loan
Securing a bridge loan can be relatively easy, especially when working with the right bridge loan lender. The process starts with a phone call or filling out an online form outlining the general loan request. With a few questions answered, a lender can decide if there is initial interest. Once a completed loan application is received and determined to meet their lending criteria, a term sheet will be issued shortly thereafter. The term sheet will request items such as financials on the property, proof of income, and/or purchase agreement for the new property if applicable. With the final items gathered, the loan documents will be issued and signed, and your loan will be funded.
Remember, bridge loan lenders have flexibility in the qualification process. This means if your credit score is less than ideal, you may still be able to secure a bridge loan. Since bridge loans are considered asset-based lending, they are secured by the real estate itself as collateral. Although your credit score will be considered, the loan amount is based on factors such as the location and value of the property, rather than solely on creditworthiness.
Getting Started
Understanding how to secure a bridge loan, ensures real estate investors can navigate the process with confidence, even if their credit history is less than perfect. For those looking to maximize their investment potential and navigate the complexities of real estate transactions effectively, bridge loans prove to be a strategic tool worth considering.
Partnering with a reputable lender like Wilshire Quinn can further streamline the process, offering industry expertise and personalized guidance to ensure your bridge loan meets your specific investment needs. Our team is committed to fast and reliable funding. Reach out to a team member at Wilshire Quinn Capital today to discuss further.
