A commercial expert knows that a bridge loan borrower is like a boomerang- they are always going to keep coming back for more.
Like every traditional loan financing, in the case of bridge and hard money loan funding, there is always a criterion that has to be met. A borrower would largely embark on a bridge money funding so as to purchase a real estate property before closure period or to take advantage of short-term business opportunity. So, in short and simple terms a bridge loan, a short-term financing is taken by a borrower in order to qualify for long-term loan financing. It is usually taken for a period of two to three weeks.
Considering the background against which short-term funding is embark upon, certainly, hard money loan financing comes into play soon after the borrowing term for the former ends. This is the part where the borrower transitions from bridge to hard money funding. Under this arrangement, the latter is taken based on genuine property secured with the former- the initial funding. The difference between these two financing methods is seen in the criteria for borrowing. Cross-collateralization is allowed for bridge money, whereas only a borrower with genuine property in form of real estate is qualified for hard money.
That said about how the two real estate loan financing methods work, the bottom line is that most people don’t know how to transition smoothly from a short-term to long-term real estate financing. Against this backcloth, consider this write-up as a quick guide to smoothly transitioning from bridge to hard money financing. Let’s go into details about the steps:
Not all that glitters is gold- before taking any step to apply for a real estate financing, considering how much is being staked to finance the loan and how much could be made to go under the bridge in the event of of a bridge in the agreement, focus primarily on how get the trustworthy borrower with flexible terms. Be very inquisitive- ask everyone you know where you can get the the best funding experts who can take out your short-term loans.
Critical Appraisal of the worth of collateral: this is very important on the ground that, the worth of the property will determine the length of your fixed money loan. For this kind of arrangement, when an unfinished building construction is involved, have it assessed by a commercial expert as well as a broker to determine what the market value will be in exchange for money when it has been completed. Most building constructions, during evaluation are maxed out at 75% of the worth.
Take into account the costs of all hard materials used including land and labour. In case of family labour which didn’t get paid for, analyze it, ascertain how much it cost if a worker has been hired to do that bit and include in the costs.
Loan financing pros and cons: like other commercial funding arrangements, in real estate financing, there are pros and cons- sacrifices have to be made. As way of compensation for the risks involved in funding, bridge and hard money loan financers charge a bit higher interest than other traditional money lenders. Adding to that, it’s imperative to, at the very start, keep in mind, the collateral worth. Figure out how much will be paid back as interest cut on the property as well as all other events surrounding the loan financing. This way, borrowers get successfully funded and reimbursing will be done at ease.