A hard money bridge loan is a type of loan that enables a borrower to purchase property but lacks the necessary funds to complete the transaction. A borrower with significant equity can use a property they already own as collateral. Another alternative is to pay a down payment on a new property of about 25%-30%. However, these loans are less suitable for business owners who do not have sufficient capital to complete the deal. The following are some important factors to consider when applying for a hard money bridge loan.
One of the most important factors in obtaining a hard money bridge loan is the borrower's credit history. Most traditional banks base their loan approvals on a borrower's credit history. Hard money lenders are more flexible and will look past problems such as bankruptcy and foreclosure as long as there is sufficient equity in the property. Moreover, if the borrower has adequate income to make monthly payments, hard money lenders on this company will not worry about his or her past credit history.A typical hard money bridge loan requires a loan to value ratio (LTV) of at least 65% or 70% of the property's market value.
This ratio helps lenders determine if a borrower can repay the loan or not. A hard money lender will generally require a lower LTV ratio for a more complex asset. The loan can be for a period of several months to a year, depending on the asset.A hard money lender should be flexible and willing to extend the loan period as required. It must be noted that every hard money lender will have different terms, so be sure to ask about them before signing the contract. A business attorney should also review the terms of a loan agreement before signing. It is best to contact a hard money lender in person or fill out an application online. They can approve your loan in just five days. However, if you have any other financial issues, you should not sign the contract unless you are satisfied with the terms and conditions.
A private hard money bridge loan may be your only option if you intend to convert a vacant property into a business. Although most banks would prefer to finance the deal after the borrower has executed his or her business plan and developed a steady cash flow, private lenders can be more involved and will look more closely at the borrower's track record. They will also require a personal guarantee for the loan. Then, you'll have peace of mind knowing that the lender will be there for you every step of the way.
When it comes to hard money loans, most hard money loan requirements experts recommend them as a short-term solution, rather than a long-term solution. They're not meant to replace a conventional mortgage, and they should only be used as an alternative if you already have a solid exit strategy. A hard loan borrower will have to provide significant cash and equity in the property that they are securing. That's why they're better for those who need a short-term solution but don't have the time or funds to wait for a traditional bank loan.
Keep reading on https://en.wikipedia.org/wiki/Bridge_loan and most importantly, convert your knowledge into action, otherwise it remains a source of untapped energy as well as wasted potential.
