Financing rates are higher and more volatile than any time...
A bridge loan, also referred to as bridge financing or a swing loan, is a means of obtaining short-term financing for individuals who are looking to increase the value of their property or are in a financial pinch while they meet other obligations or during an interim period of acquiring permanent financing.
Bridge loans are typically used in real estate and have a duration ranging from 6-18 months. These types of loans usually come with high interest rates and can also be attached to collateral such as property.
Here are a few scenarios in which bridge loans can help:
Real Estate investors typically face tight deadlines to close and need capital quickly when a good investment opportunity presents itself. Bridge loans are typically funded faster than traditional loans but, in exchange for fast financing, the borrower faces a short loan term duration, larger origination fees, and high interest rates.
Bridge loans are about speed and giving a borrower more options, particularly in fix-and-flip. Borrowers need to buy a property with little money down, rehab it quickly without sacrificing quality, and sell as soon as possible. It’s all about maximizing return on investment (ROI). Borrowers will pay a little more in rate to juice up their ROIs with higher leverage.
Sometimes a borrower who is in the middle of a rehab can find that their lenders are not acting as a good partner on the deal. The lender might be holding up draws, slowing the project down or charging junk fees in order to make more money on a loan. Borrowers will look for a new partner who can provide a bridge loan to help them complete their project.
Another scenario is after a rehab has been completed. Sometimes, borrowers look for a bridge to give them a bit more time to sell a property. Imagine a house on the market in the dead of winter. The investor might feel they can sell for more if they wait until the spring buying season. Refinancing for term loans takes time, so the borrower may need a few months to secure that perfect term loan. A bridge loan could give them some time to secure the best possible exit to maximize their investment.
Another example is when a borrower is looking to change the legal classification of a property. If the borrower is changing the density or use of the house or doing ground-up construction or condo conversion, bridge financing can give them the runway to get the needed permits, approvals, or variances to increase the value of the property.
Borrowers should also be aware of closing costs when using a bridge loan, in addition to fees that can be upwards of 2% of the original value of the loan. These combined costs and fees are typically around a few thousand dollars.
Bridge loans are used in one of two ways in real estate, by either paying off an existing mortgage and refinancing into a new one or using the mortgage to acquire a property. Check out the following examples.
The borrower has bought a house for $300,000, put $100,000 into the rehab and now needs to spend another $100,000 to finish the project, with $300,000 of debt on the property. The investor could borrow up to 90% of the purchase price, plus sunk costs ($300,000+ $100,000= $400,000 * 90%= $360,000) and 100% of the remaining rehab ($100,000). So, as long as the as-is value is higher, the borrower could take out $60,000 in cash for the work they’ve done and have the rehab funds available to finish their project.
We lend to experienced residential real estate investors, nationwide. We fund fix-and-flip projects, ground up construction, and a variety of single family and multi-family rental loans. Our bridge loan product, Multifamily Bridge, is designed for small balance multifamily investment properties, offering extensive debt solutions through our vertically-integrated national lending platform.
Our Multifamily Loan Program is perfect for small balance residential properties with more than 5 units. The minimum loan amount is $500,000. With rates starting at 6.49% it’s perfect for rehabbing a multifamily property.
For general loans, Haus Lending covers up to 90% of the lesser of the as-is value or purchase price and 100% of the rehab costs. For refinancing, Haus Lending covers up to 90% of the lesser of the as-is value or purchase price plus sunk costs and 100% of the rehab costs.
Our loans are designed to make financing your projects easy and efficient. With loan terms on Multifamily investment projects having term lengths of up to 24 months (with two 6-month extensions), Haus offers flexibility for your projects.
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