A bridge loan is short term financing for an individual (investor) or business entity until permanent financing is obtained. Proceeds from the new financing is typically used to "take out" (i.e. to pay off) the bridge loan.
Bridge loans are commonly used for commercial real estate acquisitions to expedite the property closing, get real estate out of foreclosure, or use it for opportunistic purpose to secure long term financing. Bridge loans on a property are typically repaid once the property has sold, refinanced with a traditional lender, the property is improved or completed, the borrower's credit has improved, or once there is a change which permits permanent mortgage financing to occur.
A bridge loan is similar to a commercial hard money loan in that it overlaps. Both loans are non-conventional loans secured for short-term reasons. The hard money loan refers to the source, which is generally an individual, pool of investors, or private company which is not a bank that makes high risk, high interest loans. A bridge loan refers to the loan term, not the source
Bridge loan interest rates are usually 8-15%, which is a little lower than or on par with hard money sources. Bridge loans generally have terms up to 3 years, loan-to-value ratios customarily do not go beyond 65% for commercial properties, or 80% for residential properties, determined by the appraised value.
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