Tag Archives: between
Bridging Loans – How Quickly Could I Get One?
First of all, let’s just take a quick look at exactly what a bridging loan actually is. It’s a nightmare scenario. You’ve spotted the perfect new home. Right number of rooms. Good size, well looked after, not too far from work and with a great garden for the kids. The only fly in the ointment is that you’ve not managed to sell your own property yet.
That’s the end of that then, right? Well actually, not necessarily. Enter the bridging loan. As the name suggests, it’s a short term loan facility that provides a ‘bridge’ between one loan and another. In this case, the loan would allow you to go ahead and make the purchase of the second property. The facility would only need to be short term, typically between 4 and 12 months.
There are of course, quite a few other reasons why you could consider a bridging loan:
– you may be considering making a purchase of a property from an auction, in which case you need to raise the funds very quickly.
– you could be thinking about purchasing land or even, as all the property programmes on television are concentrating on at the moment, a property abroad.
– refurbishing an investment property with the intention of selling it on in a very short space of time.
– raising money to pay a tax bill
– covering temporary cashflow problems
– taking off on an impromptu luxury holiday
– your daughter’s getting married. She wants all the trimmings and you have to do your parental duty and cover the expense!
As the property merry-go-round has been spinning at full tilt in recent times, many people have found themselves in a situation such as described above and as a result, the volumes of bridging loans have increased accordingly. Lenders have provided more choice and options and have often been innovative in their approach to help their customers.
Clearly, the key principle of a bridging loan is providing the cash very quickly to the customer who, probably more than any other type of borrower, needs the cash immediately. The whole process is very often streamlined and simple in real terms. There are many online brokers that you could make an enquiry to and having done so, they will probably be in touch with you on the phone in a matter of only a few minutes and you could have a decision in principle within an hour or so.
As part of the application, the broker, on behalf of the lender, may ask you to supply some or all of the following supplementary documentation:
– proof of residency
– proof of income
– proof of ID
– buildings insurance certificate, and
– an independent valuation figure
Once received, the loan could be completed in somewhere between 2-10 days. Wow! Now that is fast! So if you need to raise finance quickly, you now know what to do.
Hard money lenders explained
I recently attended a real estate investment seminar in Las Vegas. Between speeches by different gurus I would mingle with other investors and explain that I owned a hard money brokerage firm. Even though it has been around for almost a hundred years now, I was amazed how hard money lenders still seem to be mysterious to many investors. They either did not understand how the hard money lending industry worked or had heard that it was something they should avoid like the plague.
To put it simply, hard money loans are short term loans that are used for various real estate projects. The most common projects are house flipping, but they are also used in commercial construction and land development. Essentially, a hard money loan is often the best choice for money that is needed on a short term basis.
Unlike conventional financing, a hard money loan also known as a private loan originates from a private individual or institution unlike a bank. The loans are generally short term between 6 and 12 months and have a high, interest only payment generally between 10% and 14%
Another major difference between a hard money loan and a conventional loan is that a hard money loan is not based on a persons credit but instead on the value of the project after its completion. A good example is if John has a house that he wishes to rehab and sell for $100,000.00 a hard money lender will lend up to $65,000.00. This is what is known as Loan to Value or LTV. Most hard money lenders lend anywhere from 55% to 70% LTV depending upon what type of project the borrower has.
Now you are probably asking yourself what the catch is, how do these lenders make there money? Hard money lenders make there money 3 different ways. The first way they make there money is the closing costs. These are anywhere from 1 to 4 percentage points of the overall loan. These points are paid when the loan is completely paid off in full. The second way they make there money is the interest only monthly payments on the loan which is anywhere from 10% to 14%. The third way they make there money is if the borrower happens to default on the loan. Being as the loan is not based on the persons credit, hard money loans are secured by the property itself. If a borrower defaults, the hard money lender now has a property or piece of land for 65% of what it is worth. However, it should be stated that this rarely occurs as most hard money lenders are not in the business of foreclosing on properties.
So should a borrower use a hard money lender? The simple answer is if a borrower has a real estate project that needs short term financing that a conventional bank will not lend on, yes.