Bridge loans are a type of short-term loan used in real estate transactions. Like hard money loans, they are secured by the borrower’s property. Typically, the purpose of a bridge loan is to provide capital while other, more permanent financing such as a home loan is secured. Lenders may offer a commercial and/or residential bridge loan.
Why Use a Bridge Loan?
As the name implies, borrowers use bridge loans to bridge the gap between their current financial situation and their real estate purchasing needs. For residential borrowers, this typically means buying a new house before selling a previous home. The bridge loan allows the buyer to get the house he or she wants without having a sale contingency.
Commercial borrowers often use bridge loans to take advantage of opportunities. They may need to close quickly to take advantage of a time-sensitive opportunity or may want to retrieve a property from foreclosure. Bridge loans give them access to liquid capital quickly.
Advantages of Bridge Loans
Sometimes a bridge loan is one of the best ways to get financing for a real estate purchase. Here are some of the advantages:
- You can start trying to buy right away without a sale contingency.
- You may be able to avoid payments for several months on your bridge loan.
- You can place more competitive offers on possible properties.
Disadvantages of Bridge Loans
Of course, bridge loans are not always the perfect choice. Here are some of the disadvantages:
- Bridge loans are often relatively expensive due to their short term.
- Requirements from some lenders are very strict.
- You will be using debt to make a down payment in addition to your existing mortgage payments.
Finding the Right Bridge Loan
The key to getting the most from a bridge loan is finding the right lender. Fortunately, when searching for bridge loan and hard money lenders Los Angeles residents have some great options to choose from.
