What is a bridge loan, and how should a real estate investor use it?
Let’s get the obvious out of the way first: they are not used to buy a bridge.
Then why are they called a “bridge loan”? Because they’re short-term loans that bridge a gap left by other financing or by the timing of your investments.
How Does a Bridge Loan Work?
Bridge loans fill a need for short-term capital. These loans have a short duration and cover a gap from:
- Hard money to long-term financing.
- One property selling to buying another.
- Covering a down payment or closing faster on a new property.
They’re always secured by your current property. For most bridge loans, you pay them off between a few weeks to a few months later.
When Is a Bridge Loan a Good Idea?
You can use bridge loans to purchase a property while waiting on another property to close. Once the first property sells, you use that money to pay the bridge loan off.
The loan works perfect when a bank is dragging its feet to close a loan, or asks for another 30-60 days for processing.
As long as there is a property with good equity available, you can use it as collateral for the bridge loan.
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