Learn About Bridge Loans
At Funding Resources LLC, we understand that sometimes waiting for traditional financing just isn't an option. That's why we offer bridge loans to help borrowers bridge the financial gap between purchasing a new property and selling an existing one.
What is a Bridge Loan?
A bridge loan is a short-term funding solution that allows borrowers to obtain financing quickly while they wait for long-term financing. It is typically used to cover expenses related to purchasing a new property such as a down payment or closing costs, while waiting for the sale of an existing property. Bridge loans are secured by the existing property, which acts as collateral for the loan.
How Does a Bridge Loan Work?
Bridge loans work by providing borrowers with temporary financing until they can secure long-term financing. The loan is based on the equity in the borrower's current property, rather than their credit score or income. Once the borrower secures a long-term loan or sells their property, they use the proceeds to pay off the bridge loan.
Bridge loans typically have a term of six to 12 months and come with higher interest rates and fees. The higher costs may be worth it for borrowers who need the funding quickly and cannot wait for traditional financing.
How Do I Qualify for a Bridge Loan?
To qualify for a bridge loan, borrowers need to have equity in their current property and a clear plan for paying back the loan. The amount of equity needed will vary depending on the borrower's financial situation and the property's value. Typically, borrowers can obtain up to 80% of their property's value with a bridge loan.
Borrowers will also need to demonstrate that they have a solid plan for repaying the loan. This may include showing proof of a long-term loan commitment, a sale contract for their existing property, or other sources of income.
What Are the Terms and Conditions of a Bridge Loan?
Bridge loan terms and conditions will vary depending on the lender and the borrower's financial situation. However, some common terms and conditions include:
- Loan amount: Bridge loans typically range from $100,000 to $10 million, depending on the borrower's needs and equity.
- Interest rates: Bridge loans come with higher interest rates than traditional loans, typically ranging from 8% to 12%.
- Fees: Bridge loans come with higher fees than traditional loans, including origination fees, appraisal fees, and closing costs.
- Repayment terms: Bridge loans typically have a term of six to 12 months, though some lenders may offer longer terms. Borrowers will need to repay the loan in full at the end of the term or when they secure long-term financing or sell their existing property.
- Collateral: Bridge loans are secured by the borrower's existing property, which acts as collateral for the loan.
- Credit score: While credit score is not the primary factor in determining a borrower's eligibility for a bridge loan, lenders may still consider credit score when making lending decisions.
