If you are thinking about buying a residential or commercial property, you may consider getting a bridge loan. This type of short-term loan can be valuable for helping borrowers move forward with time-sensitive opportunities. However, many people have never considered one before. They wonder if hard money loans and bridge loans are hard to qualify for.
What Is a Bridge Loan?
When you buy a property, you will most likely finance it. To do so, you need to provide a down payment. For many people, when they move from one property to another, the down payment is covered by the sale of the initial property. However, to do this, you would need to sell your property before closing on the new one.
This is typically handled by a contingency. However, this can make your offer less attractive. Therefore, another option is to use a bridge loan. This will help you move forward with financing the new property before selling your existing property. The term is typically less than a year and the loans can move quickly. When used right, bridge loans can make buying property faster, easier and sometimes less expensive.
What Are the Qualification Requirements?
To qualify for a loan, you will need to have equity in a property and good overall financials. Bridge loan lenders are mostly concerned with the value of the real estate in question. You will need significant equity in the original property. Lenders may offer a 70% to 75% loan-to-value ratio on your current equity.
The loan can be secured against your equity in the new property or the original one. However, in either case, you will need equity in the first property to qualify because the sale of the first property will be used to pay off the loan.
You should also expect to need to demonstrate greater financial strength than may otherwise be necessary. You will be paying off two loans during the term of the bridge loan. Therefore, you will need to show that you have the income and assets to do so.
Is It Hard to Qualify?
Typically, bridge loans are not hard to qualify for if you have equity in your current property and are not overly straining your financials by buying the new property. Bridge loans are usually offered by hard money lenders. So, they have more relaxed requirements compared to conventional mortgage lenders.
The main challenge is that you could end up paying three loans: the original mortgage, the bridge loan and the new mortgage. When planned carefully, this is very manageable. However, if you struggle to sell your home or overly strain your income, it could cause problems.
Explore Bridge Loans Today
Check out a top hard money lender California residents can turn to when buying a new residential or commercial property. Once you know a little more about what you may qualify for and what the costs involved will be, you will be prepared to decide whether a bridge loan is right for you and your real estate plans. This powerful tool can be very valuable when used right.