Residential Bridge Loan Lenders
Residential bridge loan lenders provide financing to homeowners and real estate investors who need to borrow against the equity within their existing property in order to purchase a new property.
What is a Residential Bridge Loan?
A residential bridge loan is a short-term loan using a borrower’s existing real estate as collateral. A real estate bridge loan is taken out with the intention of purchasing a new property. Once the new property is secured, the existing property is sold to pay off the residential bridge loan.
Bridge loan financing is an excellent option for homeowners who don’t have enough cash on hand to purchase new real estate but have equity within their existing property. Bridge loan financing is also ideal for homeowners who wish to move from their primary residence but don’t currently have sufficient income to qualify for a conventional home loan. Residential bridge loans may be the only type of financing that seniors and retirees can obtain due to current income verification requirements.
Residential Bridge Loan Benefits
1. Fast Approvals and Funding
Hard money bridge loan lenders are able to approve and fund residential bridge loans very quickly. Approvals can be done same day and funding for a primary residence take 2.5 weeks (bridge loans for investment property can be funded in days).
2. Avoid Moving Twice
Residential bridge loans allow the owner to access the equity within their current property in order to purchase a new home. Homeowners should consider a bridge loan when they don’t have enough cash for a down payment or all-cash offer to purchase the new home. Without a bridge loan the homeowner would be forced to sell their current home, move out and rent a property temporarily, buy a new home and then move in. Residential bridge loans are the clear choice when faced with the challenge and expense of moving twice.
3. Receive Loan Approval without Income Verification
Bridge loans are special type of loan that do not require the owner-occupied borrower to prove their income in order to qualify for the loan. Residential bridge loans do not have the same “Ability to Repay” requirement as conventional home loans. This is because the sale of the existing property will pay off the loan when it is sold. Not having to prove income to obtain the bridge loan is especially beneficial for seniors, retirees, self-employed and those with significant assets but currently lacking income.
4. Receive Loan Approval with Poor Credit or Issues on Record
Hard money bridge loan lenders are asset-based lenders. This means they are primarily concerned with the value of the property and the borrower’s equity within that property. Poor credit or other issues on a borrower’s record such as bankruptcy, loan modifications, short sales or foreclosures can be overlooked as long as the borrower is otherwise financially stable and has sufficient equity within the real estate they wish to borrow against.
5. Present a More Attractive Offer When Purchasing a New Home
An all-cash offer is essentially the best offer that can be presented to a seller. An offer that requires the buyer’s current real estate to be sold prior to the new purchase being completed is a very weak offer. Sellers are less likely to accept an offer with this type of contingency, especially during a hot real estate market with many buyers completing for few properties. An offer contingent on the buyer’s property selling comes with a great deal of uncertainty and will be passed on for a better offer.
A residential bridge loan allows the homeowner to raise funds to purchase a new home with an all-cash offer or a sizable down payment.
How Do Bridge Loans Work? A Bridge Loan Example:
A couple who owns their home wants to move to a new home. Unfortunately, the couple does not currently have enough cash on hand for a down payment or all-cash offer. However, they do have a significant amount of equity within their home. They are faced with 2 options:
1. Sell their existing home and move to temporary housing, then use the proceeds from the sale of their home to purchase a new home. They would then need to move again once they purchase the new house.
2. Obtain a residential bridge loan which allows the couple to borrow against the equity within their current home. The bridge loan proceeds are used to purchase a new home. Once the new home is purchased, the couple moves into the new home and sells their previous home.
The couple chooses a residential bridge loan as they wanted to avoid the added expense and hassle of moving twice. The residential bridge loan is funded within 3 weeks. The bridge loan provided the couple with enough funds for an all-cash offer on their new home purchase. They were able to have their cash offer accepted and beat out competing bids. They secure the home quickly with a short escrow.
Once the couple moves into their new home they sell their previous home which pays off the residential bridge loan. The couple paid off the residential bridge loan through the sale of their previous home after only 3 months so the tax-deductible interest expense was kept to a minimum.
Hard Money Bridge Loans
Hard money bridge loan lenders can fund residential bridge loans very quickly. Residential bridge loans for owner occupied property generally take 2-3 weeks to fund while residential bridge loans on investment property can be funded within 5 days if needed. Hard money bridge loan lenders can provide bridge loan financing so quickly because they are asset-based lenders. They are primarily concerned with the value of the real estate and the borrower’s equity within the real estate. As long as the loan amount will maintain at least 25-30% of equity in the property the hard money bridge loan lender will be able to fund the loan and fund it quickly.
Banks that offer bridge loans must consider the value of the real estate and the borrower’s equity, but they also typically focus heavily on the borrower’s income and credit history. The added emphasis on income and credit create additional documentation and paperwork as well as reasons to deny the borrower’s residential bridge loan request. Banks that offer residential bridge loans may take up to 30-45 days or longer to approve and fund the bridge loan. A hard money bridge loan could be approved and funded in half the time.
A borrower with bad credit or recent issues on their record such as short sales, bankruptcies, foreclosures or loan modifications can still obtain a hard money bridge loan. Hard money bridge loan lenders can look past poor credit and these types of issues as long as the borrower has sufficient equity in their real estate and enough income to make the bridge loan payments.
Bridge Loans for Self-employed and Those Without Sufficient Income History
As self-employed people may already know, obtaining a loan from a bank can be difficult or impossible depending on the circumstances. Those who have changed jobs or careers recently may also have difficulty obtaining financing from a bank or other conventional lender. Many conventional lenders require 2 years of employment history even if the borrower has plenty of income and assets.
A borrower in any of these situations could secure a hard money bridge loan if they had adequate equity in their property. Hard money bridge loan lenders are able to provide bridge loans to these types of borrowers.
Residential Bridge Loan Rates
Residential bridge loan rates from hard money lenders typically range from 8-10% interest with 1.5-2 points. The terms will vary based on various criteria including the location of the property, condition of the property, loan to value ratio requested and strength of the borrower.
Banks are less likely to offer residential bridge loans as they prefer long-term loans. Bridge loan financing is for short-term use which is less profitable for banks. Borrowers may be able to find banks offering residential bridge loans at lower rates, but they will take much longer to approve and fund the loan. Banks will scrutinize the borrower’s income, credit scores and any negative issues on the borrower’s record such as foreclosures, short sales, loan modifications and bankruptcies.