When used correctly, stabilized bridge financing loans–or bridge loans–can be an essential tool for real estate success. However, many investors either don’t understand what a bridge loan is or in what circumstances to utilize this flexible financing tool.
In this article, we will simplify bridge loans, explain the meaning and benefits, and provide different bridge loan examples:
In this article, we will simplify bridge loans, explain the meaning and benefits, and provide different bridge loan examples:
What is a Bridge Loan?
A bridge loan, by definition, is a short-term property loan designed to bridge a financial gap when funds are needed but not yet available. In the consumer mortgage industry, a common bridge loan example is when a homeowner purchases a new home while waiting for their current home to sell.
The homeowner uses the equity in their current home for the downpayment on a new home while waiting for their current home to sell. A bridge loan gives the homeowner extra time and peace of mind while waiting for their original home to sell.
The homeowner uses the equity in their current home for the downpayment on a new home while waiting for their current home to sell. A bridge loan gives the homeowner extra time and peace of mind while waiting for their original home to sell.
How Does a Bridge Loan Work for Investors?
Bridge loans can be utilized by both short- and long-term investors who must act quickly and need immediate access to capital.
Let’s look at a few unique and beneficial features of bridge loans for investors:
Let’s look at a few unique and beneficial features of bridge loans for investors:
- Short-Term Financing: As mentioned, bridge loans are a short-term financing option that often comes with no prepayment penalties and repayment periods ranging from 6 to 12 months.
- Fast Approval Processes: With less oversight and more freedom, bridge loans through private lenders have extremely fast approval processes compared to business loans through heavily regulated conventional lenders, such as banks and credit unions. The speed at which your investment project can be approved and funded is one of the greatest advantages of a bridge loan.
- Flexible Funding: In the investment world, bridge loans can cover the costs of purchasing properties, rehabbing homes, or stabilizing an investment before obtaining permanent financing.
- Interest-Only Payments: Many bridge loan lenders offer interest-only payment options, meaning investors are only required to make payments on the interest rather than the principal balance. This makes them attractive loan options for short-term projects where investors plan to sell or refinance quickly.
Investment Bridge Loan Examples
Experienced investors turn to bridge loans when they need immediate capital to close on a property or to fund initial renovations. Let’s look at a few bridge loan examples where these short-term loans are particularly beneficial:
Investors must understand the overall status of the market, including:
Investors must understand the overall status of the market, including:
- Job markets
- Housing affordability
- Residential growth
- Unemployment rates
Fast Closing in Competitive Markets
Speed wins in highly competitive real estate investment markets. Savvy investors can utilize bridge loans to access funds quickly to outpace the competition and win bids on profitable investments.
Fix and Flip Projects
Stabilized bridge loans are an excellent option for fix and flip investors. Some lenders allow this short-term loan for properties to be used to quickly purchase, lightly renovate, and flip a property–aligning with fix and flip project timelines and goals.
Transitioning to New Opportunities
One of the biggest challenges for investors looking to scale their business is coming up with enough funding to finance multiple investment projects. For short- and long-term investors and builders, bridge loans can mitigate these challenges, providing access to bridge funding to chase new opportunities while a previous investment is waiting to be sold or rented.
Renovations Before Long-Term Refi
In the long-term real estate market, rental investors often purchase properties that need renovating or repositioning. Short-term bridge loans are a cost-effective option (with a faster approval process than DSCR loans) to secure the capital needed to reposition and renovate a rental property. These renovations enhance its value and ROI potential before going to market and refinancing.
When to Avoid Bridge Loans
Bridge loans may not always be the best option for investors due to their typically higher interest rates, short repayment periods, and other miscellaneous costs (origination and closing costs). In certain circumstances, bridge loan requirements may demand previous real estate experience or a minimum FICO score of 660.
For long-term investors, if a single- or multi-unit investment does not require significant renovations or repositioning, a DSCR loan might save you substantially in interest costs. However, approval times may take longer.
Short-term investors should steer clear if they are not confident in their ability to sell a property within the bridge loan terms. Use considerations during slow selling seasons (November – January) or local or national market instability.
In the end, when utilized correctly, stabilized bridge loans can be a powerful financing instrument. Hopefully, by understanding how a bridge loan works through the definitions and various bridge loan examples provided in this article, we hope you have gained some insights and understanding to optimize these short-term loans to outpace the competition, unlock new opportunities, and expand your investment portfolio.
For long-term investors, if a single- or multi-unit investment does not require significant renovations or repositioning, a DSCR loan might save you substantially in interest costs. However, approval times may take longer.
Short-term investors should steer clear if they are not confident in their ability to sell a property within the bridge loan terms. Use considerations during slow selling seasons (November – January) or local or national market instability.
In the end, when utilized correctly, stabilized bridge loans can be a powerful financing instrument. Hopefully, by understanding how a bridge loan works through the definitions and various bridge loan examples provided in this article, we hope you have gained some insights and understanding to optimize these short-term loans to outpace the competition, unlock new opportunities, and expand your investment portfolio.
CIVIC: Your Trusted Long- & Short-Term Bridge Loan Capital Partner
For over a decade, CIVIC has earned a reputation as a trusted and reliable capital investment partner. With long- and short-term lending packages, including our Stabilized 1-4 Unit Bridge Loans and Fix and Flip Financing bridge loan options, we provide our customers with the flexibility, accessibility, and speed necessary to win in today’s competitive markets.
CIVIC’s 1-4 Unit Bridge Loan for long-term investors includes:
CIVIC’s 1-4 Unit Bridge Loan for long-term investors includes:
- Flexible term options from 12 to 18 months (on a case-by-case basis)
- Several non-owner occupied property types, including:
- Attached or detached SFR
- 2-4 unit residential properties
- Townhomes
- Condos
- No-DSCR option available
- Our 1-4 Unit Bridge Loan options provide short-term financing to “bridge” the gap between now and when you qualify for conventional financing, or if you are ready to sell your property, or need additional time to increase your FICO or improve your DTI.
For home flippers or landlords who need access to cash for renovations, CIVIC’s Fix and Flip Financing bridge loan packages include:
- Coverage of up to 100% of renovation expenses
- Flexible short-term options
- Extensive rehab financing for larger fix and flip projects
Go beyond bridge loan examples and learn how to utilize these powerful investment tools to grow your business and enhance your bottom line. CLICK HERE to schedule a FREE consultation with a CIVIC team member today!
