What is a Bridge Loan?
A bridge loan is a type of asset-based, short-term loan, typically taken out for a period of a few months to a couple of years pending the arrangement of longer-term financing or an exit such as the sale. It is usually called an asset-based bridge loan in the U.S, a bridging loan in the United Kingdom, or a “caveat loan,” or a swing loan.
What are the benefits of a bridge loan?
Let’s say you’re selling your house and need money to buy another house, but you’re short. In this case, a bridge loan can take care of the financing issue that emerges before your current home sells. Bridge loans fill the gap where traditional lenders cannot provide the speed of funding and flexibility of terms required by the borrower. It is used when financing is fundamental, and a favorable rate is not accessible – think of them as a form of secured debt upheld by collateral.
In addition, bridge loans fund faster than bank loans. Good opportunities don’t last long, which is why using a loan with fewer requirements that closes quickly is an excellent choice. It allows investors to grab a fleeting opportunity before someone else snatches it up.
How can you use a bridge loan?
1. Purchase transactions
In residential real estate, bridge loans are used to rapidly close on a deal before a long-term loan or mortgage with a lower financing cost is acquired. When a homebuyer wants to buy a new property before selling their previous home, a bridge loan can be used to pay off the old mortgage and purchase the new home.
Let’s imagine a scenario. Like many of our clients today, Covid has impacted your business and you need capital now. You’ve applied for a loan with your bank, but the lender tells you that it could be weeks before you get your funds or you may not qualify based on current cash flow. You don’t want to play the waiting game. Anything can happen in the time it takes for a “standard” mortgage to be approved and disbursed.
On the other hand, if you own real estate you could use a bridge loan and receive funding with a much shorter turnaround — even as quickly as a week depending on the complexity, location, LTV, and structure.
Bridge loans can give you the flexibility you need to buy your dream home in a competitive market. At America Mortgages, we provide U.S. short-term “bridging” loans for overseas borrowers and are certain to find you the right mortgage.
Often America Mortgages Bridge financing is a cheaper alternative to the standard hard money or private lending options, while just as flexible underwriting and fast with the turn around to fund.
America Mortgages provides bridge loan financing for companies, developers, and individuals on a global scale. These interim financing services have been designed to assist real estate investors with financial solutions that offer quick relief in challenging times when liquidity or cash flow is an issue. America Mortgages Bridge has normal terms of 12-36 months with interest-only payments.
4. Delayed purchase exit
Using a bridge for purchase is almost “same-as-cash” and could get your offer accepted when other offers may be tied to “traditional” financing. The big question, how do you exit out of a higher interest bridge loan? The answer is simple; Delayed Purchase.
In a delayed purchase transaction, you can take out a “traditional” mortgage on the property immediately. This allows you to have the advantage of being a “cash buyer” and gives sellers the chance to know the transaction will close while giving you the time and flexibility to obtain a long-term permanent mortgage. Depending on the loan program, this normally needs to be done within three months of closing.
Bridge loan Case Studies
Here are two case studies of America Mortgages Bridge financing solutions:
Canadian investment fund purchases hotel in Texas. Read More.
Chinese National closes US$5.6m purchase with GMG Bridge Loan. Read More.
Get in touch with us today to learn more about the structures and options of short-term bridge financing solutions www.americamortgages.com