What Are Multifamily Bridge Loans?

Are you a real estate investor looking for financial help with your real estate investments? Have you heard about multifamily bridge financing but you are unsure how these loans work?

Unlike conventional loans or other types of loan options available through Fannie Mae or HUD, multifamily bridge loans don’t have lengthy approval timelines or stringent requirements.

If you want to learn more about multifamily bridge loans and how they can help you fund your real estate project needs, you came to the right place! This brief guide will go over what multifamily bridge loans are and who you can reach out to for more information.

What Is a Bridge Loan?

A bridge loan, also known as a swing loan or bridge financing, is a financial tool for a company or an individual to secure permanent financing or remove an existing obligation.

This allows you to meet your current obligations by providing cash flow immediately. These loans are short-term, backed by collateral, and have higher interest rates than conventional loans.

Scenarios Where Bridge Loans Help

If you wish to purchase a new property and you want to fix it up quickly and sell it for a much higher price, you can use a bridge loan to do that.

Bridge loans provide you with fast capital, so you can use those funds to purchase your new investment property and fix it up. You also have the option to take out a bridge loan on a renovated home to give yourself more time to sell and recoup some of the money invested.

What Is a Multifamily Bridge Loan?

multifamily bridge loan is a loan you can obtain to purchase a multifamily property. You can also use these funds for other types of commercial properties.

You can use this multifamily bridge loan to finance the property while you complete the necessary upgrades and renovations to ensure the building is up to code. The multifamily bridge loan also helps to upkeep the utility and HOA fees until you lease the property.

You can use this commercial loan to obtain multifamily properties, commercial retail locations, and other types of investment properties. Make sure that you review with your lender what you can use your funding for once you receive your approval.

What Are Bridge Loans Used For?

Most real estate investors face very tight deadlines to close and need quick access to capital when a fantastic investment opportunity presents itself.

Unlike conventional funding, which can take months before you receive an approval, bridge loans usually fund within days or weeks, depending on your lender. Some lenders have the ability to approve and release your funds within 24 hours.

Borrowers face shorter loan terms, high-interest rates, and larger origination fees in exchange for this quick funding. Bridge loans are more focused on giving borrowers more options, especially for those who wish to work on fix and flip projects.

Real estate investors need that money quickly to purchase a property, rehab it quickly without sacrificing quality, and sell it as soon as they can. The goal of these loans is for real estate investors to maximize their ROI.

Real Estate Investors and Bridge Loans

A great example of why a real estate investor would use a bridge loan is if they are in the middle of a rehab and the lender is not acting as a good partner in the deal.

The lender may hold up draws, charge unnecessary fees, or slow down the project so they can make more money on the loan. When this happens, the investor will then reach out to a bridge financing company that can provide them with a bridge loan to help them complete the project.

Another example of an investor reaching a bridge financing company is after the rehab is complete. These types of borrowers are looking for a bridge loan to give them more time to sell a property.

For example, let’s say this investor completed their rehab in the winter when the housing market isn’t as busy as it usually is. The investor will then get a bridge loan to finance the home and pay the maintenance fees while waiting until the spring when more homebuyers are looking to purchase a home.

Changing the Property Classification

It is not uncommon for real estate investors to want to change the classification of a property. Suppose the investor is looking to change the use of the home or do ground-up construction. In that case, a multifamily bridge loan can help them get their needed permits, approvals, or other necessities to increase the property’s value.

How to Get a Multifamily Bridge Loan

Before you apply for a multifamily bridge loan, you will need to find a lender who authorizes multifamily bridge loans. The best loans are with reputable companies that have previously provided loans to other real estate investors.

You can mainly find these companies online. Before settling on any company, make sure that you do your research.

If you are in a network of real estate investors, you can ask your colleagues who they financed through and their experience with using them. Before you apply, make sure that you also have at least 20% of the property’s purchase price to use as a down payment.

Multifamily Bridge Loan Costs

Multifamily bridge loans are excellent financial tools to provide temporary funding if you wish to buy a real estate investment property.

This article mentions that bridge loans are more expensive than traditional loans. The interest rates for these loans tend to be around 10% to 24%, depending on your lender’s requirements and terms and conditions.

Other costs associated with multifamily bridge loans:

  • Appraisal fees
  • Title policy costs
  • Notary fee
  • Escrow fee
  • Loan origination fees
  • Administrative fees

In addition to paying these fees, you will need to also pay for any closing costs. If there are any other legal fees, you will also need to pay those at closing. On average, the closing costs and fees for these loan options range between 1.5% to about 3% of the total amount of your loan.

Qualifications for Multifamily Bridge Loan Funding

One of the most significant qualifications for multifamily bridge loan financing is the property you wish to finance. This property will serve as collateral if you default on your loan.

Another qualification is your down payment. If you already have a piece of property in mind, it is best to at least have 20% of the purchase price on hand to use as a down payment.

Lenders will also want to see if you can afford to make payments on the property while managing your own mortgage if you already have a mortgage in your name. Keep in mind that if you already have a portfolio of investment properties, you will want to let the lender review that.

Lenders are more willing to work with candidates that have previous experience obtaining and maintaining multifamily bridge loans successfully. If you are a newer investor, the lender may want to look into your credit score.

They will use that information to underwrite your loan. As a newer investor with lower credit, you may have much higher interest rates than the average real estate investor with a portfolio and better credit.

Before you obtain a loan, make sure that you have a solid plan of what you plan to do with the property. This will show the lender that you have a well thought out plan on how you plan to use the funds to complete your project.

Advantages of Multifamily Bridge Loans

As mentioned earlier, you can receive your funds faster than a traditional loan. Traditional loans can take months to process, and there is no guarantee that the loan is yours until you wait for them to finish underwriting and review your loan.

Bridge loans allow you to have access to capital within days. At most, you may have to wait ten days max before the lender releases the funds.

Flexibility for Your Business

Multifamily bridge loans are more flexible than conventional loans because they give businesses the capital they need to purchase properties. Other companies, or real estate investors, use this money to supplement their cash flow.

Comfortable Payment Amounts

Most bridge funding lenders don’t ask you to start paying on your loan until the end of your loan term. During your term, you will most likely need to pay interest only each month until it is time to pay the loan in its entirety.

Since you are only paying interest and not towards the principal of your loan, the size of your monthly payments is much lower. This is helpful for real estate investors who do fix and flip loans. It helps them to use those funds to focus on the needs of the fix and flip project.

Keep in mind that a few lenders penalize you for paying too early on the loan. This is because they lose out on interest payments you would have made had you only paid what you owed per month.

Simplified Approval Process

Getting approved for a multifamily bridge loan is much easier than conventional commercial loans.

Of course, there are a few lenders who will want to take a look at your credit before they release the loan. For the most part, receiving an approval is relatively quick, and you should receive a response within 24 hours.

Alternatives to Multifamily Bridge Loans

Other loan options are available for you to obtain if you find that a multifamily bridge loan does not meet your needs. You have the opportunity to get a cash-out refinance, a home equity line of credit, or a home equity loan.

Cash-Out Refinance

If you want to use your current mortgage as a financial vehicle to fund your real estate investment properties, you can use a cash-out refinance.

You will need to refinance your existing mortgage with a high enough amount to pay for your current mortgage and enough to fund your real estate project. Before you can opt for a cash-out refinance, you will need to ensure that you have enough equity in your home even to start the cash-out refinance process.

Home Equity Line of Credit

Home equity line of credit, also known as HELOC, is another financial product you can use to fund your real estate investment projects. This line of credit is solely based on a percentage of the equity you currently have in your home.

If you receive an approval, you can use as much as you want up to the credit limit. The amount you receive the approval for may be enough to use as a down payment for your real estate investment property.

The HELOC uses your current home as collateral if you default on the loan. You will only need to make monthly interest payments for a home equity line of credit. Keep in mind that you must pay the remaining balance in full when your loan term ends.

Home Equity Loan

Compared to the home equity line of credit, a home equity loan is something you receive as a lump sum of cash.

You can use this money as a down payment for the property you wish to invest in. Keep in mind that you will need to start repaying on the home equity loan as soon as you use those funds.

Receive Your Approval Now

Applying for multifamily bridge loans is easier than ever. All you need to do is find a reputable financial institution that offers these loans and apply with your information.

Upon approval, you will need to put down a percentage of the home’s purchase price, and you can start your real estate investment property.

If you are ready to learn more about what you qualify for, contact us now. Our team is fully prepared to take care of you and any questions about the application process.