Bridge Loan: Short-Term Financial Empowerment for Acquisition of New Property

Bridge loans: 3 things you need to know

Buying a new property for over $100,000 might be a financial hurdle for an individual who longs to acquire it. To surmount this financial challenge, a bridge loan may temporarily be used. You can use the loan to acquire the new property or to pay the down payment on the new property. In short, it is an interim loan for very quick financing in real estate. It is available for acquisition of residential, commercial, and industrial properties.

Bridge Loan Amounts and Requirements

Bridge loan amounts solely depend on the capital of the loan lender. So, the loan amount can range from $50,000 to $50,000,000 and beyond. Also, the requirements vary from one creditor to another. However, most creditors want to know the value of borrower’s collateral. Thus, a loan application that contains the financial record and the properties of the borrower is necessary.

Interest and Fees on Bridge Loan

Interest on a bridge loan varies, depending on factors such as loan duration, loan-to-value ratio, and property type. Another consideration is the measure of risk that comes with the loan. Generally, bridge loan interest rates from private creditors vary from 8 to 12 percent. Moreover, fees charged on bridge loans are calculated in the form of points; the points generally range from 2 to 3, with 1 point corresponding to 1 percent of the loan amount. On top of this, other fees such as documentation fees, as well as processing and transaction fees, may apply.

Loan-To-Value Ratio of Bridge Loans and the Wide Gap Between Residential and Commercial Property

The loan amount is based on the value of the current property that you use as collateral. The loan comes as a certain percentage of the value of the current property. For commercial properties, the loan-to-value ratio is 60 to 65 percent. On the other hand, residential properties attract loans of up to 65 to 75 percent of the value of the current property. Thus, lower loan-to-value ratios of commercial property are due to the fact that commercial properties cannot be easily valued and are also difficult to sell.

A bridge loan is a form of real estate financial support for the acquisition of a new piece of property until you sell the current property. Thus, it is easy to obtain. However, there are charges and fees.

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