In particular, bridge loans are useful when “coinciding settlements” fall apart. For example, if the buyer of Property A was expecting to use money earned from closing on another transaction such as the sale of Property B as their down payment on Property A, and was planning on having the sale of Property B happen shortly before the closing for Property A, and then for whatever reason the sale of Property B gets delayed, then normally, the buyer of Property A would be in default on their contract since they would not have the money available to close on that purchase. As an alternative, a bridge loan would give them the money to close on the purchase of Property A as scheduled, and then they could pay off the bridge loan with the proceeds of the sale of property B when that eventually occurred. (Bridge loans usually have interest rates significantly higher than the rates available for traditional residential mortgages–generally about 5-9 percentage points higher–and somewhat higher than for commercial/investment mortgages.)

The biggest requirement for a bridge loan is that it does actually need to be a “bridge”, spanning the gap between two transactions; the underwriters for a bridge loan will need to see paperwork confirming where the funds to pay off the bridge loan will be coming from, as well as evidence that it’s likely that those funds will eventually show up within a relatively short period of time (generally no more than 36 months).

In addition, bridge loans usually require that the borrower have at least a 25% down payment on the bridge loan.

Finally, bridge loans are generally easiest to obtain for income-producing properties (existing, under construction, or for rehabilitation), such as:

• Hotels/Motels
• Office Buildings
• Retail Space
• Warehouses
• Hospitals
• Multifamily buildings
• Single-family Rentals
• Assisted Living
• Mixed-Use Properties

Bridge loans are harder to obtain for non-income-producing properties such as single-family owner-occupied properties, but they are still available for well-qualified borrowers.

If you may have need of a bridge loan, please don’t hesitate to contact us. In particular, the Ethical Homes team specializes in placing bridge loans between $500,000 and $75 million for acquisition, refinance, and construction needs, as well as providing “mezzanine” financing and funding for bankruptcy and foreclosure situations, and can often close such loans in as little as 10 days.

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