Updated: 5 days ago
In this blog post, we'll provide an overview of private lending bridge loans, including how they work, why they are a good option for certain borrowers, and how to apply for one. We'll also discuss the risks associated with private lending bridge loans and what borrowers should consider before applying. By the end of this article, you'll have a better understanding of whether a private lending bridge loan is the right choice for your next real estate project.
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What are Private Money Lending Bridge Loans?
Private Money lending involves individuals or companies providing loans to borrowers. Bridge loans are short-term loans that are typically used to bridge the gap between a borrower's need for funds and their ability to obtain traditional bank financing.
Private lending bridge loans combine these two concepts. They are typically used to finance real estate transactions and are secured by the real estate being purchased. The primary benefit of private money lending loans is they are usually a no income verification mortgage.
The terms of private money lending bridge loans can vary, but they typically require the borrower to make interest-only payments during the term of the loan and then make a balloon payment of the full principal at the end of the loan term.
How do Private Lending Bridge Loans Work?
Private lending bridge loans are secured by the real estate being purchased. This means that if the borrower defaults on the loan, the lender can take possession of the property to recoup their investment.
The lender and borrower will agree on the terms of the loan, including the loan amount, interest rate, and repayment period. The borrower will then use the funds to purchase the real estate.
During the term of the loan, the borrower will typically make interest-only payments. At the end of the loan term, the borrower will be required to make a balloon payment of the full principal amount.
Private money mortgage bridge loans can be used in a variety of real estate transactions, including purchasing a new property before selling an existing one or renovating a property to increase its value before refinancing with a traditional bank loan. Bridge loans that allow renovations are called fix n flip loans.
Overall, private lending bridge loans can be a useful tool for real estate investors and borrowers who need quick access to funds. However, borrowers should carefully consider the terms of the loan and the risks involved before applying.
Why Choose Private Lending Bridge Loans?
Private lending bridge loans offer several advantages over traditional bank loans. One of the main advantages is the speed of approval and access to funds. Private lending bridge loans can be approved quickly, often within a matter of days, allowing borrowers to act quickly in a competitive market. Traditional bank loans, on the other hand, can take weeks or even months to approve.
Another advantage of private lending bridge loans is that they may be a good option for borrowers who don't qualify for traditional bank loans. Private lending bridge loans are often more flexible in their underwriting criteria, allowing borrowers with less-than-perfect credit or other financial issues to still qualify for a loan.
Additionally, private lending bridge loans can be useful for borrowers who need to finance a real estate transaction that does not meet the strict guidelines of traditional bank loans. For example, a borrower may need to purchase a property that is in disrepair or needs significant renovations, which may not be eligible for traditional bank financing. The also do not have to go through Fannie Mae's Condo Project Review Process.
Private lending bridge loans are able to finance nearly any residential and commercial property type, including;
✔ Single-family homes
✔ Spec Homes for New Construction
✔ Multi-family residential properties
✔ Commercial properties, such as office buildings, retail spaces, and warehouses
✔ Industrial properties, including manufacturing facilities and distribution centers
✔ Mixed-use properties that combine residential and commercial elements
✔ Vacant land and development sites
✔ Fixer-upper properties in need of renovation or rehabilitation
✔ Non-owner-occupied investment properties
✔ Special-use properties, such as hotels, restaurants, and healthcare facilities
✔ Plus other property types not listed
How to Apply for a Private Lending Bridge Loan
Here are the steps to apply for a private lending bridge loan:
Start by filling out our online pre-approval form here
We review the pre-approval request, review, then we schedule a call to go over your loan options and terms.
If in agreement, we complete your loan application and request the required submission documents for loan submission.
The lender will review your application and underwrite the loan, which may include an appraisal of the property being purchased and a review of your credit history and financial situation.
If the loan is approved, the lender will provide the funds for the purchase or refinance of the property.
Remember, it's important to work with a reputable company and carefully consider the terms of the loan before applying.
Things to Consider Before Applying for a Private Lending Bridge Loan
While private lending bridge loans can be a good option for certain borrowers, there are some risks and considerations to keep in mind before applying. Here are a few things to consider:
✔ Higher interest rates: Private lending bridge loans often come with higher interest rates than traditional bank loans. Borrowers should carefully consider whether they can afford the higher monthly payments.
✔ Short repayment period: Private lending bridge loans typically have a shorter repayment period than traditional bank loans, which means borrowers must be prepared to make a balloon payment of the full principal amount at the end of the loan term.
✔ Collateral: Private lending bridge loans are secured by real estate, which means that if the borrower defaults on the loan, the lender can take possession of the property to recoup their investment.
✔ Reputation of the lender: It's important to work with a reputable lender to ensure that you are getting a fair deal and that the lender is operating within the bounds of the law.
✔ Loan terms: Borrowers should carefully review the terms of the loan, including the interest rate, repayment period, and any fees or penalties.
✔ Exit strategy: Borrowers should have a plan for how they will repay the loan at the end of the term, whether it's through refinancing with a traditional bank loan or selling the property.
Private lending bridge loans can be a good option for borrowers who need quick access to funds or who may not qualify for traditional bank loans. They can provide a bridge to traditional bank financing, allowing borrowers to act quickly in a competitive market. They allow financing for condos, non-warrantable condos, vacant land, plus many other unique property types that traditional loans would not allow.
However, it's important to carefully consider the risks and terms of the loan before applying. Borrowers should work with a reputable lender and have a clear plan for repaying the loan at the end of the term.
In summary, private lending can be a valuable tool for real estate investors and borrowers who need short-term financing. By understanding the advantages and risks of private lending bridge loans, borrowers can make an informed decision about whether they are the right choice for their next real estate project.
What types of properties can be financed with private lending bridge loans?
Private lending bridge loans can finance various residential and commercial properties, including single-family homes, multi-family properties, mixed-use buildings, retail spaces, office buildings, and industrial properties. This flexibility makes them suitable for a wide range of real estate projects.
What is the typical loan-to-value (LTV) ratio for private lending bridge loans?
Private lending bridge loans generally have a loan-to-value (LTV) ratio of 65-85% of the property's value. This means that the loan amount will typically cover up to 65-85% of the property's value, with the borrower being responsible for the remaining equity.
How quickly can I expect to receive funds from a private lending bridge loan?
Private lending bridge loans are known for their fast approval and funding process. Depending on the lender and the complexity of the transaction, borrowers can often expect to receive funds within a few days to a few weeks, significantly faster than the timeline associated with traditional bank loans.
Can I use a private lending bridge loan for property renovations or improvements?
Yes, private lending bridge loans can be used to finance property renovations or improvements, in addition to purchasing properties. This makes them an attractive option for real estate investors looking to add value to a property before selling or refinancing.
What are the risks associated with private lending bridge loans?
Private lending bridge loans come with several risks, including higher interest rates and shorter repayment terms compared to traditional bank loans. Borrowers must also ensure they have a viable exit strategy in place, such as refinancing or selling the property, to repay the loan within the specified term. Failure to repay the loan on time can result in the lender foreclosing on the property.
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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