Evaluate the Option—Would a Hard Money Bridge Loan Work for You?

by HMLS

In the traditional sense of the word, a bridge is a structure that lets you bypass an obstacle. Bridge loans do the same—they’re short-term products you use to overcome a liquidity hurdle, with a long-term financing option available to you at the other end. These loans are versatile and fit into various real estate scenarios, but finding a lender that caters to your deal can be challenging.

A hard money bridge loan serves borrowers well if they’re looking for something quick and easy to qualify for. You have the option to go to banks and private mortgage companies as well, but they may not operate at the same speed as hard money lenders. This article will explore these options in detail.

Bridge Loans—Uses and Basic Terms

Bridge loans (also called gap loans) are commonly used for real estate purchases, construction projects, and business funding in situations that call for urgent cash. In regular circumstances, one would usually go through traditional banking channels to secure the loan. The only problem is that qualifying for a conventional mortgage or a commercial loan can take months. Bridging comes as a natural solution when you’re waiting for conventional funding to come through.

If we look at real estate specifically, a bridge loan comes in handy in two other scenarios:

  1. Transitioning between properties—One classic bridging example is when you have to sell a home and use the funds to buy or build a new one. Instead of rushing the sale, you can get a bridge loan on your current or prospective property and pay the loan off when you get the sale proceeds
  2. Rehabbing or renovating—If you want to fix up a dilapidated property, you have to go for bridge or rehab loans since regular mortgages are not available for rundown homes. Once the work is done, you can settle the loan by refinancing or selling the finished property

Source: Thirsty Turf Irrigation

Since bridge loans are instruments of convenience, you have to pay an interest rate higher than the conventional lending rates in your state. For example, if you have to pay 7% annually for a 30-year home loan, a bridger may charge you 10% for financing the same property for a year.

The interest rate also depends, to an extent, on the tenure requested. In general, these loans have a one-year term, but if you request a shorter tenure, say two months, the lender may charge a higher percentage to have a decent yield.

Bridge and Hard Money Loans—How Do They Come Together?

Hard money lending is one of the channels that enable bridge loans. Individually, bridge and hard money loans are unique concepts, but they work well together because they’re both short-term products with high interest rates.

Lending Channels for Bridge Loans

Government banks or agencies rarely offer bridging programs—you have to rely on private lenders for this particular service. Hard money loans operate within the boundaries of private capital-sponsored debt but differ from the products offered by private banks and financial institutions, aka conventional lenders.

Conventional private lenders provide financing after analyzing personal credentials that add to your soft assets, which include your FICO score, debt-to-income (DTI) ratio, and cash reserves, among other components. If you pass as a low-risk borrower, you get the loan. 

A hard money lender goes in the opposite direction, providing funds based on the value of the hard asset, i.e., the tangible property that acts as collateral. The lender embraces higher risk with this type of financing because, if the borrower defaults, they can only recover their investment from the hard asset, unlike banks that may create a lien on the borrower’s future income.

Conventional Private Bridge Loan vs. Hard Money Bridge Loan

Conventional and hard money bridge loans are mostly similar, but the core nature of both loan types entails some differences. Refer to the following table for more info:

AspectConventional Bridge LoanHard Money Bridge Loan
Eligibility criteriaMost lenders authorize private bridge loans to clients who have:
A credit score of 680 or more
Maximum DTI ratio of 45%
Cash reserves to cover at least three months of interest payments
Hard money lenders look beyond the financial health of the borrower, offering loans based on the latest appraised value of the property
Interest ratesInterests rates are usually fluctuating, but some lenders offer the option to lock in a particular rateMost hard money lenders charge fixed rates
Collateral requirementA few private banks don’t ask for collateral if you come with excellent credit and have been maintaining a healthy account with themHard money loans, by principle, revolve around the collateral
Typical usageThese loans are mainly used by businesses that have a long-term professional relationship with a private bankThey are popular in the real estate and commercial lending scene, as well as other avenues where getting a conventional loan is tough

Know that both types have similar closing costs and funding times. Your ultimate borrowing decision depends on what product you qualify for. Most people find it simpler to go with hard money bridge loans because the documentation requirements and financial scrutiny are lower.

Source: Yan Krukov

How To Find a Reliable Hard Money Bridge Lender

Finding a hard money bridge lender can be challenging, primarily because this type of funding is not standardized, and the lending logistics can seem confusing. For example, some lenders may refuse to offer their services if your collateral is an owner-occupied home or if they have to hold the lien in the second position after the primary mortgage.

Whether you’re looking for bridging lenders online or in your real estate network, conduct basic research on your options. Here are five comparison points you can consider:

  1. Reputation of the lender
  2. Bridging terms, interest rates, closing costs, and penalties
  3. Acceptable properties
  4. Personal qualifications (e.g., some lenders ask their clients to maintain a base credit score)
  5. Closing time

Keep in mind that a hard money bridge loan is a tool of convenience and shouldn’t feel predatory. Avoid loan-to-own lenders and loan sharks who don’t conduct a realistic appraisal of the property—some may take a fat deposit and bail when it’s time to fund.

Hard Money Bridge Loans Are Done Right at Hard Money Loan Solutions

Even though finding the right hard money lender is hard, it shouldn’t feel stressful. If you’re looking for a trustworthy lending group that helps you move with confidence, Hard Money Loan Solutions (HMLS) is your answer.

Based in Delray Beach, FL, the HMLS group offers tailor-made bridging packages to investors, homeowners, and business professionals. The loan can thoroughly adapt to various project goals, such as house flipping, rehabbing, BRRRR (buy, rehab, rent, refinance, repeat) investing, renting, moving homes, or remodeling. As for eligible properties, HMLS lenders service all types of real estate, including:

  • Single- or multi-unit homes
  • Townhouses
  • Condominiums
  • Apartments
  • Retail buildings
  • Warehouses
  • Land
  • Special-use properties

Drop a loan application at Hard Money Loan Solutions to consult a seasoned lender. The HMLS team is friendly, professional, and relationship-focused—you can expect:

  • Objective advice on your bridging situation
  • Quick and transparent communications
  • Quality in-house real estate/investment guidance throughout the loan tenure
  • Realistic suggestions about other borrowing options (if you don’t qualify for an HMLS loan)

The group has a 5-star rating on Google, which is further complemented by several noteworthy customer reviews. HMLS lenders conduct a watertight property appraisal before approving a loan—once an application is passed, the lenders honor the funding no matter what.

Source: Google Reviews

How Long Does HMLS Take To Service a Bridge Loan?

A typical bridge loan at HMLS is funded within 3–10 days, but it can take up to 14 days for complicated deals. The lenders ask for minimal paperwork, usually documents about your property and business, and never probe into your bank account and other financials. You can also apply for an HMLS bridge loan as a foreign national. The primary qualification criteria mostly revolve around:

  • Whether your collateral value and loan-to-value (LTV) ratio make sense
  • If you have/will have enough equity in the property

The HMLS team doesn’t scrutinize how you use a gap loan. You can even use the funds to cover the down payment for a traditional loan if that’s what you need.

HMLS packages are flexible—you can discuss what terms would suit you after you apply for a loan. Check out what a standard HMLS loan looks like:

Loan ComponentHMLS
Principal$100,000 to $50,000,000+
Interest rate9.99%–12%
Interest typeFixed
Term1–3 years
Prepayment penaltyNo penalty after 6 months
Installment typeInterest only (no amortization)
LTV offeredUp to 70% of the lower of:
As-in value
Purchase price or cost input (as applicable for your gap situation)
Origination fee2 points or 2%
Down paymentNot required—the borrower receives the LTV directly and manages their deal independently

The interest rates depend on the LTV required—use the site’s online LTV calculator if you’re budgeting.

Source: Gustavo Fring

If bridging doesn’t seem like a good choice, you can also opt for other borrowing programs serviced by HMLS, such as:

Applying for an HMLS Bridge Loan—Process

Follow these steps to submit a loan application at HMLS:

  1. Open the online loan application form
  2. Enter your contact details
  3. Provide information about your business and collateral
  4. Add any specific comment or question about your deal (optional)
  5. Submit the application

The HMLS team will analyze your application and call you for further discussion. If you’re approved, your upfront cost will only be a small fee for the legal expenses necessary to establish the loan.

Repaying a Bridge Loan

Most bridge lenders ask for interest-only payments. Your principal repayment is due as a balloon payout at the end of the term when you get permanent financing or sell the property. That being said, there’s always a chance your repayment strategy backfires, leaving you with no capital to cover the bridge.

Foreclosure is the obvious risk that comes with defaulting on a gap loan. Talk to the lender beforehand in case your exit plan falls through—many lenders are ready to discuss alternative repayment scenarios to avoid foreclosing. For example, if you got a bridge for a rehab property and are waiting to find a buyer, the lender may alter the loan package to accommodate your needs during the extended period.

Reach out to Hard Money Loan Solutions if you have any other queries about hard money bridge loans.

Featured image source: Jack Sparrow

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