Is a Bridge Loan Right for Your Multifamily Purchase?
If you’re a multifamily investor in need of some flexibility or stabilized income before getting a traditional permanent loan, a bridge loan may be beneficial in your situation. This short-term commercial mortgage allows borrowers to close in a shorter time frame, as little as two weeks as opposed to the usual 45-60 days, while also providing additional time to solve any issues impacting the property before converting the bridge loan to a long-term loan.
Here are the situations where a bridge loan can be advantageous:
- You need a steady income before getting a permanent loan
- You need to close on the property quickly
- You have credit issues
- You need additional time to resolve property issues – such as property improvements, recovery from foreclosure, or get steady cash flow.
The terms of bridge loans can vary from 6 months to 3 years, and cost slightly more because of their flexible nature. Depending on the property and strength of the borrower’s application, commercial bridge loans are often floating rate and can cost anywhere from 6-13%. On the upside, you have flexibility when it comes to timing, prepayment schedules, and lockout periods.
If you’re looking into a bridge loan, ask your lender of they have a bridge-to-permanent loan program. Once the property issues are resolved, you can convert the bridge loan to a permanent one. You’ll also be able to pay back the bridge loan when you refinance or the property is sold. Some lenders won’t have prepayment penalties when you go through permanent mortgage financing, but many may apply a minimum interest as a penalty.
If you think a bridge loan could be beneficial to your situation, talk to your lender to see if you qualify, and what kind of rate and terms they offer.