Bridge Loan in Real Estate
Bridge loans are often used for commercial real estate purchases to quickly close real estate, recover real estate from foreclosures or use short-term opportunities to ensure long-term financing. The real estate bridge loan is usually repaid in the following cases: sale of the real estate, refinancing to traditional lenders, improvement of the borrower’s credibility, improvement or improvement of the real estate, or specific improvements or changes to allow Permanent or subsequent mortgage financing occurs. Timing issues may come from project phases with different cash needs and risk conditions and ability to obtain funding.
Bridge loans are similar to and overlap with hard money loans. Both are non-standard loans obtained due to short-term or abnormal conditions. The difference is that hard money refers to the source of loans, usually individuals, portfolios, or private companies, rather than banks that are engaged in high-risk, high-interest loan businesses, while transitional loans are short-term loans that “close the gap between long-term loans.”
For a typical period of up to 12 months, 2-4 points may be charged. Based on the assessed value, the loan-to-value (LTV) ratio of commercial properties usually does not exceed 65%, and the loan-to-value ratio of residential properties does not exceed 80%.
The bridge loan can be closed, which means it can be used within a predetermined time frame, or it can be open because there is no fixed repayment date (although repayment may be required after a certain time).
Lower LTV may also receive lower interest rates, again representing lower underwriting risk, although front-end fees, legal fees and valuation payments may remain fixed.