A bridge loan is a short-term finance loan ranging from two months to three years for individuals, multifamily, or commercial real estate. It is a facility until the individual or company gets permanent financing or pays an existing obligation.
It allows the borrower to meet existing commitments by providing immediate cash flow, but it has relatively high interest rates. The borrowers must provide collateral, such as real estate or a business's inventory.
The primary advantage of a bridge loan is its speed of implementation. Bridge financing is what you need when you need finance during the purchase, restoration, lease-up, or repositioning of a property.
Read on to learn more about multifamily and commercial real estate bridge loans.
Bridge Loans in Multifamily Real Estate
Bridge loans come with many uses, including:
Buying an apartment or building.
Re-evaluation of construction debt during a property's lease-up phase
Financing renovations or other significant capital advancements at a property.
How a Bridge Loan Works
As the term implies, bridge loans bridge the gap when financing is required but not immediately available. Real estate companies and individuals take bridge loans, and lenders customize these loans depending on the situation after evaluating the borrower's financial status.
Bridge loans are ideal for homeowners looking to purchase a new home even before they sell their current home. Real estate companies apply for bridge loans to cover immediate expenses while waiting for long-term financing.
Bridge Vs. HUD Financing
Borrowers are keener on the HUD (Housing and Urban Development) multifamily loans as they offer the lowest rates, flexible amortizing spans, and the highest force in the market. But they take a very long time to approve and finance. Bridge loans fill that gap by having a faster application, approval, and funding process. While it is convenient, the loans tend to have moderately short terms, high interest rates, and hefty origination fees.
What Are Commercial Bridge Loans?
Commercial bridge loans are short-term saleable real estate loans used to purchase commercial properties when permanent financing is not immediately available. Their primary use is when a property needs substantial renovation before it qualifies for permanent funding. However, there are a few other reasons to consider a bridge loan:
The property has insufficient occupancy rates
The borrower wants to improve their credit score.
The borrower requires immediate funds and cannot wait for permanent financing
Incomplete ownership/project team in place
The bridge loan repayment terms vary between 6 months and three years, depending on the agreement between the investor and borrower, after which the property is either refinanced with permanent financing or sold.
Commercial bridge loans can be used to purchase or refinance office buildings, hotels, retail properties, multifamily housing, apartment complexes, and raw land for developing commercial properties.
Commercial bridge loans have quick approvals, and the loan value is based on the fully improved value of the property, not on its "as-is" value. In this way, they provide the capital that a real estate investor needs to close on opportunities quickly with complete necessary renovations and trade or refinance into permanent financing at affordable monthly payments.
Commercial Bridge Financing Is Useful For
If you purchase an old office building with considerable inoccupancy, you may not find great financing terms until the acquisition has a stabilized tenant base. Because of this, a bridge loan can come in handy to improve your building's financial situation. This applies to any commercial property, from industrial to retail.
Bridge loans are ideal when renovating a residential apartment
in poor condition with low tenant occupancy. The value of the building is low because of its poor state, although it could increase in value if it was renovated and had near complete occupancy.
Bridge financing can also be valuable when renovating and upgrading your home. You can use the loan to improve your property value. It will be useful when you need better, longer-term financing.
Bridge loans help close deals fast. The loans get approved quicker than the other finance options, enabling the borrower to buy an asset immediately without much delay or waiting for permanent financing.
Benefits of Bridge Loans
1] Quick Approvals
Bridge loans is one of the quickest-closing financing offers available to commercial real estate borrowers. A loan can close in a few days, enabling an investor to complete their real estate process quickly and effectively.
2] Flexibility
Bridge financing is also very adaptable, both in its purposes and its loan terms. As a borrower, you can negotiate several factors, like the period of the loan, monthly repayments, and interest rates, with many lenders.
3] Prepayment Is Uncomplicated
Generally, there are no prepayment penalties in bridge loans. If you can obtain longer-term, permanent financing earlier than expected, you can refund your bridge loan directly at no cost above the loan's balance.
4] Interest-Only Payments
Bridge loans, like most construction loans, allow for interest-only payments over the loan's period. An interest-only loan is a sort of financing where the customer pays only the interest on the loan for a set period of time. After the end of the interest-only period, the borrower will start paying off both the principal and interest.
How To Apply
You apply for a bridge loan similar to any other regular mortgage where you must provide documents for us to evaluate your creditworthiness, such as your DTI ratio and credit score.
You can fill out our quick pre-approval form or contact us by calling 888-276-6565 or emailing info@alphatechlending.com