Ever found the perfect investment property but couldn’t act fast enough because the bank dragged its feet? A bridge loan could be your secret weapon to not letting that happen again. But to get one, you must first understand typical bridge loan requirements.
ABL’s bridge loans have flexible underwriting terms and can close within 30 days or less. Take advantage of our loan programs to seize deals before your competitors do.
What Is a Bridge Loan?
A bridge loan is a short-term loan used to “bridge” the gap between when you buy a property and when you sell or refinance it. Think of it as an intermediary loan. While it closes faster than a traditional mortgage, it also has to be paid back sooner (typically within 12-24 months).
When to Get a Bridge Loan
Due to their relatively short loan terms, bridge loans are ideal for these real estate projects:
New Construction
When you’re building a property from the ground up, you must pay for the land plus all the construction costs—including labor, materials, and holding costs (utilities, property taxes, home insurance, etc.). Instead of waiting to invest until you can pay for all of the above with cash, get a bridge loan. That way, you can start building sweat equity now.
Once the project is complete, you can sell the property, use the proceeds to pay off the bridge loan, and keep the difference as profit. Alternatively, you could refinance the bridge loan into a long-term mortgage and pull out your sweat equity that way.
Fix-and-Flip
Fix-and-flip projects involve finding distressed or undervalued properties, renovating them, and reselling them for a profit. However, attractive deals don’t stay on the market for long. To seize a property before others do, you must act fast.
With a bridge loan, you can acquire properties quickly, make interest-only payments while you rehab them, and then pay off the loan with the sale proceeds or a refinance (aka the BRRRR method). Either way, you’ll get quick cash to execute the flip within 12-24 months.
Cash-out for Renovation or Acquisition
If you already own real estate, you can use a bridge loan to extract equity from it and use the cash to fund renovations or buy additional properties.
For example, a bridge loan could help you pull out $100,000 equity from an existing property to put toward a fix-and-flip. Then, once the flip is complete, you could use the sale proceeds to pay off the $100,000 debt. This way, you didn’t need to have $100,000 in cash to seize the deal.
Fast Acquisitions
A bridge loan can also help you secure a property while you arrange for permanent financing. For example, let’s say you’re interested in a property that just hit the market, but you’re afraid your competition will beat you to it. A bridge loan could help you buy the property quickly, giving you more time to secure a long-term mortgage.
Typical Bridge Loan Requirements
Here are some common bridge loan requirements you must meet and terms you must agree to:
Loan Requirements
- Loan size. Your lender will limit the size of your bridge loan. At ABL, we offer bridge loans of anywhere from $75K to $50M.
- Loan term. This is how long you have until the loan balance is due. Most bridge loans (including those from ABL) have terms of 12-24 months.
- Credit score. Before a lender will consider extending credit to you, you must meet their minimum credit score requirement. At ABL, we require a credit score of at least 660.
- Exit plan. Lenders want to know how you plan to repay the loan. A detailed exit strategy can reassure them that you’ll pay in full and on time.
- Experience. Some lenders require you to have a certain level of investment experience. ABL has loan programs for borrowers of all experience levels.
Loan Terms
- Loan-to-value (LTV). LTV compares the loan amount to the value of the collateralized property by dividing the former by the latter. Most lenders set a maximum LTV. For example, ABL bridge loans can have an LTV of up to 65%.
- Interest rate. The interest rate determines how much you’ll pay in interest over the course of the loan. ABL bridge loans have interest rates of 11-15%.
- Origination fees. Lenders charge origination fees (aka points) for processing your bridge loan. ABL offers bridge loans with anywhere from 0 to 2 points.
- Repayment structure. Bridge loan payments can be structured in many ways. With ABL bridge loans, you make interest-only payments and pay off the principal at maturity.
- Prepayment penalty. Some lenders charge a penalty fee for paying off your bridge loan early. However, ABL doesn’t. We let you keep any interest savings penalty-free.
3 Tips to Qualify for a Bridge Loan
Now that you know common bridge loan requirements and terms, here are some final tips to help you qualify for one:
Have a Solid Exit Strategy
The more thorough your plan to sell or refinance the property, the more confidence the lender will have in your ability to repay the bridge loan.
Create a Conservative Budget
Whether you’re flipping a property or building one from the ground up, use realistic estimates for construction and holding costs. That way, you’re less likely to run out of funds once construction begins. You may even want to create a contingency budget as an extra financial cushion.
Partner with a Reputable Local Lender
Not every lender is created equal. Some have more experience with bridge loans and better reputations than others. Furthermore, some, like ABL, have a deeper understanding of your real estate market because they have local teams on the ground.
Get a Bridge Loan from ABL
ABL is trusted by thousands of investors nationwide. Over the last 15+ years, we’ve funded over 7,000 projects with over $3.3 billion in loans. Your project could be next—whether it’s a fix-and-flip or a simple acquisition. See if you pre-qualify for an ABL bridge loan today!