What is a commercial bridge loan?
A commercial bridge loan is a source of short-term capital that is often used for debt service until an owner improves, refinances, leases, sells or achieve property stabilization. IE: Investors will sometimes use a bridge loan when their balloon payment in their
Bridge Loans in Real Estate
Bridge loans also show up in commercial real estate. If a buyer has time between the purchase of one property and the sale of another property, they can apply for a bridge loan. Usually, lenders only offer real estate bridge loans to borrowers with excellent credit ratings and low debt-to-income ratios. Bridge loans roll the mortgages of two houses together, giving the buyer flexibility as they wait for their old house to sell. However, in most cases, lenders only offer real estate bridge loans worth 80% of the combined value of the two properties, meaning the borrower must have significant home equity in the original property or cash savings on hand.
Bridge Loan Rates
Bridge loans typically have interest rates between 8.5% and 13%, making them more expensive than traditional, long-term financing options. However, the application and underwriting process for bridge loans is generally faster than for traditional loans.