Fix & Flip Investing—How Does A Bridge Loan Work?

Fix & Flip Investing—How Does A Bridge Loan Work?

A bridge loan is a popular financing option in the real estate market. Simply put, a bridge loan is a short-term loan that can be taken by an individual or a company who needs immediate cash.

Once the loan is obtained, it’s used for a short time period until borrowers can secure permanent financing in order to remove the existing obligation. For example, if you want to move into a new home before selling your existing home, you can apply for a bridge loan. The loan will be taken against your current home in order to finance the purchase of your new home.

Bridge loans typically have a 6-month to 1-year term. As short-term loans, bridge loans have high interest rates. Moreover, borrowers are required to submit collateral to lenders. These loans are issued by private parties as well as banks.

Unlike a traditional bank loan, you do not need an impeccable credit score to secure a bridge loan. Collateral matters more than a borrower’s credit score. Also, bridge loans are much more flexible than traditional bank loans. If you’re searching for flexible loan terms, costs and conditions, then bridge loan is your best bet.

Bridge vs. traditional loans

When it comes to loan application, approval and funding, bridge loans offer a lot of convenience. Borrowers can gain fast and convenient access to funds. Another major advantage of bridge loans is that they do not have repayment penalties.

The basis of bridge financing

A bridge loan is structured in such a way that it can pay off the existing liens on the current property. Consequently, the loan pays of the existing liens and utilizes the excess amount as down payment for the new property.

The loan can also be structured as a second mortgage loan. It is used as the down payment for the new home.

In the first case, there is no need to make monthly payments on the loan. Instead, you will be required to pay mortgage on your new home. Once your old property sells, you can use the money to repay the bridge loan. This also includes the interest payments and the remaining balance.

In case of the second option, borrowers will make payments on the old mortgage and the mortgage on the new property. Needless to say, this can prove to be quite expensive in the long run.

For more information on bridge loan financing and whether it’s right for you, contact Global Capital Partners Fund Limited.

As New York’s leading commercial lenders, we specialize in providing the most effective real estate financing solutions in the country.

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