Sometimes there is a gap between the closing date of a property and the date that long-term financing will be accessible. In such cases, the investor need not pass on these real estate purchases, because it is possible to take out a "bridge loan". Those who are wondering what is a commercial bridge loan, will find this guide to be of assistance.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One scenario in which this form of lending is particularly useful is when the investor needs to wait for a permit to be approved. Once the permit is granted, the lender will be paid back from the long-term borrowing plan of the investor. Someone who wishes to secure equity on a property they currently own to purchase another can also benefit from bridging, and then pay it off with the sale of the property.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
Financial bridging is intended as a temporary measure that can be implemented for anywhere from two weeks to three years until the investor has more long-term arrangements in place, which will then be used to repay the bridge loan. The loan-to-value ratio is lower, amortization period shorter, and interest rate is higher but less documentation is needed to secure this type of financing.
The main purpose of such financing is to facilitate the immediate purchase of property that would otherwise be unavailable to the investor due to timing or circumstances that rule out traditional funding options. Because of the higher risk implied with such clients, the interest rates are higher to protect the lender.
The higher interest rates, higher risk, and marginal documentation requirements does not fit the lending profile of most financial institutions, which is why banks do not offer them. The source of this financing is usually from investment pools, individuals, or private companies.
The highest loan-to-value ratio an investor can expect to be give for commercial properties is 65 percent, according the the appraisal value. There are both closed loans that are only available for a certain period of time, and open loans which don't have a payment due date established initially. If an investor wishes to apply for subsequent loans, it is likely that the interest rate will be lower as the risk is considered to be less.
One scenario in which this form of lending is particularly useful is when the investor needs to wait for a permit to be approved. Once the permit is granted, the lender will be paid back from the long-term borrowing plan of the investor. Someone who wishes to secure equity on a property they currently own to purchase another can also benefit from bridging, and then pay it off with the sale of the property.
During changes in management of a business, it can also be helpful to acquire this sort of financing as it provides funding until a new investor is found. The purchase of auctioned-off properties, or quick-buy discount investments, is also enabled through bridging options that can make things happen more quickly than most traditional forms of lending.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking for Commercial Hard Money Loan Lenders | Atlanta, GA He suggests you check out the website iFund International.
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