Bridge Loans Explained
Financing is always the hardest piece of the puzzle for a new property purchase. And banks are not loosening up their lending requirements, but instead, banks are more selective about the loans that they will do since the pandemic lockdown in spring 2020.
Whether you are relocating to buy a new home, or you’re purchasing an investment property, you must cast your net out for financing as wide as possible in today’s lending environment.
Most buyers are not well versed in the various forms of financing that are available outside of traditional bank loans. Bridge loans, also called private money loans, are the least known types of loans.
These loans are funded by non-bank lenders. Bridge loans are called such because, like a bridge, they allow buyers to pass from one step to the next. For example, a bridge loan allows for a buyer to purchase a property which will later be paid off with a long-term, bank loan or will be paid off via another means.
A bridge loan is a good option for a buyer who wants to purchase a property quickly, similar to all cash. Bridge loans fund so much faster than bank loans, and this can make all of the difference in getting the right property, at the right price.
A bridge loan can fund in as quickly as 3-5 business days, but if you want to close a bridge loan quickly , here are some items you should have ready to provide to your bridge lender.
Items needed for a Bridge Loan
Purchase Contract: Provide the purchase contract to the lender if it’s a purchase. (If it’s a refinance loan and not a purchase loan, get a payoff statement from the current lender).
Property Description: You will want to provide your bridge lender with a property description and property photos, if available. In the property description, include the number of bedrooms, bathrooms, square footage, garage size, lot size, and the year built. If you’re buying an investment property that is generating rental income, provide a statement of rental income such as a rent roll, or an income statement if available.
Loan Application OR Personal Financial Statement: Does the lender require you to fill out a specific type of loan application? If so, fill out the application as completely as possible and send it back to the lender.
Many lenders have their loan applications right on their websites. Some bridge lenders will request a personal financial statement (PFS) rather than a loan application.
A personal financial statement is easy to put together if you’ve never completed one before. Just do an online search for, “template for personal financial statement,” and use one of the examples you find to create your own.
Buying a property as an LLC or Corporation? Get all of your business entity documents together, including your Articles of Incorporation, or Articles of Formation, and your EIN number.
Proof of Hazard Insurance: Get with your insurance agent and be ready to provide proof of hazard insurance on the property. The lender will want to be listed as the “mortgagee” on the policy, so find out what lender name and address is and provide it to your insurance agent. Then give your bridge lender a copy of the declaration page. You will pay for the insurance either before the closing, or at the closing as part of your closing costs.
Resume or Bio: This is for investment property purchases only. A resume or bio will show the bridge lender that you have prior experience in real estate investing, or, that you have a background to support your ability to manage an investment property successfully.
Some bridge lenders don’t require any experience in real estate investing to approve you for a loan to purchase an investment property.
In the current lending environment, you cannot have too many options for financing your real estate purchases. Don’t limit yourself to only one loan option with no other alternatives. A bridge loan is a no-hassle, fast funding loan, that you can rely on when a bank loan just isn’t an option!
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The post What You Need to Get Bridge Loan Funding in 3-5 Business Days appeared first on Private Money Utah.