Understanding Hard Money Bridge Loans

Funny thing is that most people take that hard money loans and bridge loans to be the same thing.  This is not the case; there is a very basic difference between these two. Not all bridge loans are hard money loans. Many investors make use of hard money loans for a wide number of things including bridge financing. The confusion mainly arises from the fact that the current bridge financing market is quite unhealthy which leads to a large number of investors opting to use hard money for their temporary financing needs.

Investors opt to use hard money bridge loans to satisfy their capital needs. For instance, you can want to buy a house and you stumble upon a greatly discounted house that is being foreclosed. You see that the deal is too good and you do not want to let it go. You want to buy the house so that you can rent it out but its condition is very bad and it needs a lot of renovation before you can be able to put it out in the market. No lender will be willing to advance you a long term loan to renovate the property due to the bad condition. A bridge loan will suffice at this point. In simple terms, a bridge loan helps you to survive between the time when you buy the house and when you will be able to get permanent financing to pay for the house. Investors used to approach banks to get bridge financing. However with the hard hit that the economy has been recently getting, many banks have opted to stop giving this type of financing and those that still do have put in place very tight limits.

With hard money loans on the hand, the money is sourced from private investors. The loans come with interest rates and origination fees that are a bit over the prevailing market rate. These rates though still lie between reasonable limits. Normally investors turn to them because they know that they can get this money quickly without having to go through a lot of scrutiny and they can pay it off quickly. The process that the private lenders will take the borrower through is much shorter and much faster compared to the one that the banks will take you through. This makes it easier for the investors to acquire the cash that they need for the current financing needs that they have. This is what has given rise to the hard money bridge loans.