If you’ve ever bought real estate, chances are you’ve thought about your mortgage options. A bridge loan is the third option when it comes to commercial bridge loans. You have adjustable-rate, fixed-rate, and bridge loans. A bridge loan solves financing issues that arise when you want to purchase a new piece of property before your current one sells. In this blog, we’ll explain what you need to know about bridge loans.
What is a Bridge Loan?
A bridge loan is a short-term financing option that meets immediate cash flow needs in the time between the demand for cash and the availability of that cash. These are typically used in real estate transactions. These loans “bridge the gap” when buying and selling a property at the same time.
How Does it Work?
There are two main ways these loans are packaged:
• Hold 2 loans: this allows the borrower to take out the difference between the current loan balance and up to 80% of the property’s value. The funds on the second mortgage will be applied to the down payment of the second property while you keep the first mortgage intact until you can pay it off when it sells.
• Roll both loans into one: this allows the borrower to take out one loan for up to 80% of the property’s value. The balance of the first mortgage is paid off. The remaining funds are used toward the down payment of the second property.
How Much Can be Borrowed on a Bridge Loan?
Terms vary by lender, but generally, you can only borrow up to 80% of the property’s value.
Cost of Bridge Loans: Average Fees & Rates
While these loans are a great option to get you through that period between selling your current property and buying a new one, you’re going to pay for the convenience. The interest rate is higher than a conventional loan.
The reason that interest rates are so high is that the lender knows that you’re only going to hold the loan for a short time. Therefore, they won’t make money on collecting payments over the long term. To make money, they have to charge more interest upfront to make it worth their while.
You’ll also be required to pay closing costs and fees, just as with a traditional loan. This will include administration fees, escrow, notary services, appraisal fees, a title policy, and possibly other fees that will be explained by your lender.
Finally, you’ll pay an origination fee based on the amount that is being borrowed. This will usually be 1% of the total loan amount.
Let Jasema Help with Your Bridge Loan Needs
Bridge loans are complicated, which means you’re probably going to have some questions. Let Jasema Capital help you navigate these waters. They can assess your situation and explain to you how commercial bridge loans can help you.