A Bridge Loan is a short-term loan that helps homeowners and commercial property owners bridge the gap between the time that they receive money from the sale of their current to the time that they require the money for the down payment for their new home. At Clover, we specialize in providing bridge loans for new home or commercial property purchases to borrowers even if they have not yet sold their original property.
You as a homeowner or commercial property owner will most likely buy more than one home or investment property and move at least a few times throughout your life. You might need to change locations for work or personal reasons, you may want to upgrade to a bigger or newer home or commercial property, or you may decide to downsize to a smaller commercial property or home. Whatever the reason, you will most likely want to use part of all of the money you earn when you sell a home or investment property towards the down payment of a new property or home. In some cases, people find themselves in a situation where their closing date for buying their new home falls before the closing date of selling their current home.
In other words their house has not sold in time to give them the funds to put a down payment on the new home or property they are purchasing. This is where a bridge loan can really help by using the equity in your current property or home as collateral for a loan to put towards the purchase of your new commercial property or new home. This type of loan is usually a short term solution that ranges from a few months all the way up to one year. Clover can help you get this kind of loan using collateral like real estate or other assets.
Lenders will need to evaluate a borrower’s specific situation in order to give a borrower a maximum loan amount. Based on this information, the lender will also determine how much time the borrower will have to pay the loan back. In most cases lenders are comfortable lending as little as $30,000 up to as much as $2,000,000 or more for up to 1 year, although you can in some circumstances opt for a longer term or higher amount of bridge loan. If more time or money is needed, the lender will need to consider various factors in order to decide if you qualify. Keep in mind for larger and longer loans a lien may need to be registered on your property. A qualified mortgage agent can help you determine the best course of action to take, and find the right lender for your specific needs and situation.
Here’s a simple example to help you better understand how a bridge loan is calculated. If you are looking to purchase a new home and the closing date is in 25 days, meanwhile the closing date for the house you are selling is in 75 days a bridge loan would cover the required for the 50-day period (75 days – 25 days = 50 days) after you close on the purchase.
To better understand the process lets use an example, you are purchasing a new home for $500,000 and you have put down a 5% deposit (in this case that would be $25,000), but you wish to use the remaining $240,000 of equity in your current home to put towards your new home. The problem is that there is a 50-day gap between the sale of your current home and the closing date for the purchase of your new home. This leaves you with insufficient funds to close on the purchase in time. In this scenario a bridge loan would be ideal choice to help “bridge” together the gap between the selling of your current home and the purchase of your new home. A bridge loan will give you the funds to pay the difference between your deposit and your total amount due while you wait for the sale of your original property to close.
As with any loan, a bridge loan has interest, though it is generally similar to a rate you would expect from a personal line of credit. You can expect a bridge loan to be higher than your first mortgage rate, and it generally falls around the prime rate + 2% mark. In some case it can be up to 3% over prime, but that depends on a variety of factors. A bridge loan is issued over a short period of time, and will be repaid when the equity of your previous home or previous commercial property is collected after the sale closes.
Typically in addition to the small interest applied to you loan there is a flat administration fee which is usually between $200-$500. If you need a loan that is more than $200,000, the lender might register a lien on your property. In this case you will also need to hire a real estate lawyer when you pay the loan back and want to remove the lien. Your mortgage agent can provide you with 3 or more different real estate lawyer recommendations if you don’t have one already.
To apply and qualify for a bridge loan you will need to provide the lender with a copy of the original purchase agreement for your new commercial investment or your new home, and a copy of the sale agreement for your current property. However if your closing date is not firm, then you will need to turn to a private lender because most banks and traditional lenders will require a firm closing date in order to approve you for a bridge loan.
If you are a business and find that you are waiting for long-term financing, but you need cash to manage expenses in the meantime, than a bridge loan might be a great temporary solution. A business bridge loan can help cover utilities, rent, payroll, inventory costs, and more while you wait for your long-term financing is ready.
A bridge loan can be an ideal tool to gain access to some funds using the equity of your current home, your commercial property, or an industrial property you might own to act as collateral for the loan to go towards the purchase of your new home or investment property. This is particularly effective when there is a delay between the sale of a property and the purchase of another, as the bridge loan can give them the funds they need immediately to help close the deal on their new home purchase. This type of loan is provided to borrowers with good credit score and a low debt to income ratio.
In essence a bridge loan bridges together 2 mortgages of your two homes or your two commercial properties, which gives you flexibility when waiting for your current commercial real estate property or home to sell. Bridge loans do have some risks to consider, so for that reason lenders generally offer bridge loans for real estate at no more than 80% of the combined value of the two homes or properties. This can leave the borrower needing to have a substantial amount of home equity or commercial property equity, or a large amount of savings. At Clover, our mortgage brokers and agents are specialists when it comes to providing bridge loans even in the trickiest situations. If credit, income, or loan to value is a problem, ask one of our mortgage agents about your options.
If you need a bridge loan ASAP, Clover Mortgage can help you get APPROVED and get your money in as little as 48 hours!