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Bridge Loans
Bridge Loans
A Bridge Loan is used for short term financing and requires less documentation for approval than other loan types. This type of loan usually carries a higher interest rate due to the risky nature and lack of approval requirements. It's called a Bridge Loan because it acts as a "Bridge" to securing more favorable, long term financing. As opposed to other mortgage types a Bridge Loan is meant as a short term means of acquiring property in a relatively short period of time. This is necessary for commercial real estate applications, quick foreclosure purchases and other short term opportunities that require fast money. Bridge Loans are usually paid back when long term financing is obtained or when the purchased property is improved or sold. This type of financing is especially common in construction projects where certain completion periods allow for different stages of financing.
Bridge Loans aren't usually issued by banks or other government regulated financial institutions due to the level of risk associated with the speculated appreciation of the asset purchased. Instead this loan type is offered by individuals, investment groups and other lending companies that specialize in high risk lending. The interest on a Bridge Loan is usually 12-15% with a repayment period of three years. The amount that can be borrowed with a bridge loan is 65% of value on commercial property and 80% on residential property. Its use in residential applications is less frequent than that of commercial applications. However, a Bridge Loan can be used when someone is selling their home and buying a new one. If their home isn't expected to close until after they close on the new home a Bridge Loan may be used to cover the cost of the new home until the old home is sold. In commercial applications Bridge Loans are usually taken out to finance a project while it's seeking the proper approvals and permits.