Discovering the Pros and Cons of a Bridge Loan

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Discovering the Pros and Cons of a Bridge Loan

 

 

Arizona Home Loan Mortgage BrokerBridge loans are there when you need them. However, it’s important to find out the risks, benefits, expectations and pitfalls to make sure its more “dreams come true” than “danger beware.”

In the instance of obtaining an investment property, the market can change abruptly and things happen fast. So when you find the property of your dreams, time is of the essence to create a win-win solution. This is especially true in the case of foreclosures that generally get snapped up very quickly. That is where a commercial bridge loan comes in handy. If your current mortgage is due and you need to secure a replacement mortgage or if you lack the funds needed to finance a balloon payment of a prior loan, this type of loan can also be the answer.

First, let’s define the term bridge loan. What is it, exactly? This type of commercial loan is a particular type of short-term loan that can run the course of as little as two weeks or up to three years. It serves the purpose of being a “quick fix” when funds are needed fast. The term comes from the fact that these loans “bridge the gap” until you can secure long-term funding.

A bridge loan is a fairly straightforward loan, and the process is not too complex or difficult to apply for and get approved, and they typically do not stipulate prepayment penalties. While these loans have many benefits and advantages for business owners that need cash quickly, there are some “cons” of this type of loans so it’s important to understand what those are and if you are prepared to manage those.

It’s important to have realistic expectations about this type of loan.

As with the advantages with this type of loan, there are some stipulations that as the borrower, you need to know and be prepared to handle. One of the biggest drawbacks with this loan is the interest rates are typically higher and more expensive than long-term commercial loans. It’s important to understand the exact terms of this loan, since they can be quite short in length. Typically during the course of this loan, you are seeking a longer-term solution. With that comes the expectation of common practice that when you are able to secure long-term financing, you need to pay off or repay the remainder of the short-term loan in full. This also will alleviate the fact that you are paying a very high interest rate and likely other costs associated with the short-term loan, so it really is a win-win solution to pay off the short-term loan as soon as you secure your loan-term replacement capital.

Don’t be afraid to ask questions about your bridge loan before you sign on the dotted line.

The more educated you are about the definition, terms, “fine print” and payback structure of this type of loan, the more comfortable you can feel about moving forward with securing financing in this manner. Do some research on line and talk to a professional lender about how they can help you secure this type of loan to benefit your business.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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