PFSG
Bridge Loans
Bridge Loans are short-term (usually one to three years) loans advanced to cover the period between the termination of one loan and the start of another. For Chicago Bridge Loan Real Estate Investors a Bridge loan can be used as a purchase loan or refinance loan - (such as a multi-family property that is not stabilized).
Bridge loans are arranged for two basic reasons. First for short term Real Estate Investors looking to sell the property once the value has been increased. Secondly, to long term Real Estate investors who complete rehab and get property fully leased to allow the property (or even the borrower) to qualify for permanent financing.
Bridge loans are either: Commercial Bridge Loans for Commercial properties, Multifamily properties 5 plus units and mixed use properties 5 plus units or Residential Bridge Loans for 1 to 4 unit properties.
Commercial Bridge Loans
Commercial Bridge Loan Qualifications:
The qualifications for Commercial bridge loans vary but they generally require a lower loan to value than permanent financing plus a strong guarantor. General requirements for commercial real estate funding are three things:
1)Cash Flow (Debt Service Coverage)
2)Collateral (Loan To Value & Property Type)
3)Credit (sponsor credit and experience)
** Cash Flow: For Commercial Real Estate Financing most lenders require a Debt Service Coverage Ratio of 1.2% or better. Bridge Loans generally does not need to meet this requirement.
** Collateral: For Bridge Loans the lenders offer lower loan to values to mitigate the risk of a property that does not cash flow. The maximum loan to value is usually between 65% and 75%.
** Credit: There are some bridge loan programs that are underwritten solely on collateral. Most require the a minimum credit score. The higher the credit and experience requirements the lower the rate and sometimes a higher LTV. Therefore the strength of the sponsor is rewarded.
Residential Bridge Loans
Residential Bridge Loan Qualifications:
Residential bridge loans like commercial bridge loans are primarily underwritten based on the property and sometimes credit.
** Cash Flow: generally not considered in most programs, those that do should offer better terms.
** Collateral: Residential Bridge Loans offer lower loan to values like commercial bridge loans, but the LTVs are between 65% and 80%.
** Credit: There are some bridge loan programs that are underwritten solely on collateral. Most require the a minimum credit score. The higher the credit and experience requirements the lower the rate and sometimes a higher LTV.
** Experience: This is very important for residential bridge loans as experience help dictate the rate and loan to value.
