Real estate investors may require much-needed funds to improve a property for various reasons or to position themselves financially. That financial gap may need to take place over weeks or several months, or longer. A bridge loan is designed to fill that void so that work can continue on your  investment properties. The bridge loan is perfect for unstabilized properties. Here are several common questions about how this funding source works.

5 FAQs About Bridge Loans

1. What is a bridge loan?

It is a loan that provides capital for a short period of time while a borrower is waiting to secure long term financing. The bridge loan provides the dollars to assist in improving and stabilizing the investment property. 

2. When is a bridge loan needed?

There are various times a bridge loan should be considered. One of the common times a bridge loan is needed is when an investor needs funds to upgrade a tired property to compete with newer investment properties. Often times, it is hard to compete with the shiny and the new properties in the market unless you update your property. There are times a bridge loan is requested when an individual hasn’t sold their current property but is in the process of buying another investment property. Or when an investor finds an investment property to purchase that needs extensive updates prior to financing into a long term mortgage.

3. What is the borrowing time frame?

Bridge loan terms can range from six months to two years. Depending on the loan, a lender may grant an extension for up to an additional 12 months if the borrower needs more time to stabilize the investment property.

4. How much can be borrowed?

The amount an individual is allowed to borrow varies by the lender. However, a rule of thumb is the bridge loan may be up to 70%-75% of the “as complete” value on the appraisal for the property. The loan’s interest rate will also vary but is typically slightly higher than current market rates. 

5. What types of property can use a bridge loan?

Property types will vary by lender, however, multifamily, hotels, retail, office buildings and senior housing are typical investment properties. New construction is not allowed unless it can be cross collateralized with another performing property.

Howell Investment Finance in Ames, IA, helps commercial property investors by providing bridge loans. Serving Ames, West Des Moines, Cedar Rapids, Dubuque, the Quad Cities and Iowa City. This real estate firm will find flexible funding options such as longer terms, fixed rates, and non-recourse loans for the property being financed after finding out the goals of the investor. To learn more about bridge loans and other investment property funding, call (515) 233-8228 or visit their website for information on other loan options.