What are Bridge Loans? – Top Providers in 2020

Certain sellers will even offer their own financing services in an effort to incentivize the purchase of their properties. With this structure, they will manage the loan of the property, this will also allow them to ask for a high down payment of at least 50-60% and a balloon payment in most scenarios (a large portion of the outstanding payment would be paid at the end of the loan period).

Keep in mind that this type of model is usually offered as a Bridge Loan and not a mortgage, effectively allowing the lenders to offer their services to individuals that otherwise would not be able to qualify for a mortgage. Just like with any other alternative product, you can expect prices and cost of borrowing to rise considerably higher than with a traditional mortgage.

Depending on your situation and the level of risk that you are willing to acquire by taking one of the other alternatives from this list, you might want to look at more traditional vehicles instead. Take into consideration the fact that most of these transactions could easily be covered by a traditional mortgage instead of taking a bridge loan.

One of the few concerns that rises with this alternative is the fact that the shorter the tenure the higher the monthly payments will be. Having said so, this model allows individuals to hold multiple properties at the same time without having a chip on their back adding pressure. While this sounds like a good option, you still need to understand how expensive your monthly payments would be in a worth case scenario and also if you are in the capacity of sustaining the cost of two properties at the same time.

Blanket loans allow individuals to buy different plots of land or even multiple houses under one single debt structure. This might not be the most common type of bridge loan between retail buyers but it is a common practice from institutions that is making its way into the retail market.

Most individuals who utilize this type of loan are trying to buy a second house but have not sold another one. This acts as a bridge between the time it will take the lender to sell their first property before buying the next one, in synthesis it allows a buffer of time for both transactions to take place under one single structure.

It is fairly common for one side of the transaction to be paid in full once the property was sold and to keep the remaining financing as if it was a traditional mortgage structure.

Hard Money Loans are probably the most common type of bridge loan utilized in the market, and the main reason for this is the simplicity of the transaction. With this type of loan, you would be getting cash in hand for your current property, this would allow you to use your existing property as collateral and for the money received to be used towards the partial or full purchase of your new house.

An important aspect to mention is that this model is only offered for real short term tenures, anywhere between 6 and 12 months. Another important factor to keep in mind is the fact that this type of loan can be incredibly expensive, even if you are only planning on taking the money for a period of under 6 months you would be surprised by how high the fees really are.

Many individuals like this model because applications are pretty straightforward and because overall it is pretty fast to be approved. The fact that the property will act as collateral also covers you in terms of debt, once the property gets sold the loan will automatically get paid and you will be free to go.

Please note that during the tenure of this loan, it is a common practice for lenders to request a monthly payment with the interest rates, amortization and in some cases some sort of premium or fees to cover for the transactionality. Many financial advisors consider this type of loan as one of the riskiest borrowing vehicles in the market. The reason for this is that both the borrower and lender take the risk of not being able to sell the property, in most scenarios where this takes place the borrower will have to deal with two mortgages and high monthly payments. Please take your time to understand the risk before committing to any of these borrowing vehicles.

Additional Information

APR: Rates are based on each state

Loan Amount: $50,000 to $10,000,000

Additional Information

Additional Information

If there is any point where bridge loans truly beat other alternatives is in terms of documentation required, specifically income documentations. Due to the fact that BridgeLoans does not have to follow the Repay Rule (Reviews debt to income ratio), it opens a new world that allows individuals who are self-employed, seniors, retirees or even those without income but with equity in their home to become eligible. Traditional banks and even credit unions would otherwise reject any of the individuals mentioned above if there were interested in an Owner-Occupied Loan.

On average most institutions will allow borrowing up to 80% of the outstanding equity. To put it into perspective a $200,000 mortgage will give you $100,000 in equity, this means that at any given time a bridge loan provider would be willing to lend you up to $80,000 to use as a downpayment for your next purchase. Keep in mind that this may vary depending on state regulations and also providers around the country. Just like with any other borrowing vehicle, it is recommended to review different options before committing to one in particular. Differences in terms of interest rates and fees can be substantial, making it worth the time seeing multiple options.

Unlike with most borrowing vehicles, since you are utilizing the equity of your existing property as collateral, most institutions will be lenient in terms of the required credit score. Having said so, you need to understand that it will depend on the institution you are requesting the loan from and also the amount of equity vs the desired loan. If you are planning on borrowing only 40% of the existing equity, the odds of being approved are considerably higher than if you were borrowing the full 80% of your equity. It is important to mention that while the lender might be willing to take the risk even if your credit score is not completely clean, you might end up having only a bridge loan and not the second mortgage. What I’m trying to say is that the fact that you were approved for a bridge loan does not mean that the firm or any other will be willing you let you get a new mortgage to buy the second house if it is that you need one.

There is not a magic number in terms of length the tenure of a bridge loan should be. Before even taking one it is important to understand very clearly your financial situation, you don’t want to find yourself dealing with mortgages for a year! Aspects like the average time to close a deal in your area, pricing and the overall economic cycle should be taken into consideration at the moment of choosing the tenure. Note that most institutions will allow for early repayments without much problem, but choosing a longer tenure might also incur in a higher interest rate since day one.

These two rules are actually pretty basic and simple, on the synthesis, the rules specify the minimum length that a borrower should live in an x property before getting a bridge loan of it. The main reason behind this restriction is the idea of creating a filter for individuals with multiple properties and those who flip real state for a living. It is important to keep in mind that if you request a bridge loan without living in the house for the minimum period of time required by the lender, you would be considered as a commercial player and not retail. This results in a completely different tax structure and also a different model of fees and interest rates. If you have multiple properties and you don’t want to fall into the commercial category, you might want to look for another borrowing alternative.