Bridge vs. Hard Money Mortgage Loan
By: Kevin Meehan, Managing Partner
A Bridge loan is a form of special financing that is used when the property just does not fit the lending parameters of conventional first mortgage financing. It may be used both as an acquisition loan or a refinance option. The ability to obtain a bridge loan is greatest when the need is to reposition a property that has good to excellent chances of success. Some examples of bridge loan approvals:
- There are some major leases expiring making underwriting of a conventional loan difficult.
- For whatever reason, the occupancy of the asset is below comparable properties in the market.
- The asset may need some cosmetic improvements to get rents higher and increase its value.
A bridge loan may include funds for tenant improvements, leasing commissions, and minor renovation needs. The value of the asset is looked at on both a before and after basis. Typical financing for bridge loans may include: Interest only, 65-75% LTV, 2-5 years and rates a few points above conventional loans. Borrowers should have good credit and liquidity.
A Hard Money loan is in a league of its own in the financing world. While sometimes these loans are used for the same reasons as bridge loans as described above, there are other compelling reasons to obtain this loan. For example:
- The loan needs to close very quickly. Typical close time frame is a within 5 to 20 business days.
- The borrower may be facing foreclosure or has or had prior credit issues.
- The existing lender has offered a DPO (Discounted payoff) if the borrower can act fast.
Understand, a hard money loan could be very expensive depending upon the situation. Typical terms for a hard money loan may include: Interest only, LTVs 65% or less, and 6 month to 1 year terms (with extensions possible). It is not uncommon for these loans to provide their lenders returns in the teens or higher. When used properly, a hard money loan can be the best strategy for the future success of the asset.
Please call 212-332-3457 or email firstname.lastname@example.org anytime. We are available to discuss the best commercial property mortgage options for all your needs.
Categorised in: Loan Types
This post was written by Kevin Meehan