What Distinguishes Hard Money Loans from Bridge Loans?

Bridge financing is considered as a short-term capital need by most investors. For example, if you are looking for a discounted foreclosed house that needs some repair, it could be wise turning it into cash if it’s a rental property. Given its current state, it could prove difficult to get a long-term investment, and it’s important to always source for a different debt financier.

Bridge loans act as a “bridge” from the time you buy the asset to when you put the actual financing on it. In most cases, investors tend to rely on line of credit or banks for such kind of funding, but after the credit crunch and banking crisis, banks set higher limits on these lines of credit. Until now, the credit limits are yet to come to acceptable levels as it was before the crunch, even with today’s buying opportunities becoming more compelling.

On the other hand, hard money lenders make loans with money that originates from private investors. The loans carry interest rate and original fees which in most cases are above the market when it comes to long-term financing. This means that such loans are what investors are looking to pay off quickly so that they can refinance them into the traditional loans. Most of the private lenders wouldn’t be choosy in the kind of deals they finance, as long as they get paid back.

Although private bridge loan can be more expensive compared to the line of credit, they are still more advantageous because there are many deals that require bridge financing and are more profitable than their counterparts in the past. If you are looking to get deals done and seize the advantages in today’s property pricing, you either need to be deep-pocketed or in some way, take out a bridge loan. Since hard money is readily available in the market and given its unmatched benefits, it’s important if you opt for one or two reputable lenders. This way you can quickly take advantage of the unpredictability of such buying opportunities.