Sometimes, long-term funding is difficult to secure and cash is needed to facilitate a project quickly. Bridge loans are the preferred option in such scenarios as they offer needed financing in a short period of time, usually between a few months to a year, and often with little documentation.
In certain states, getting a bridge loan is your best option for real estate investment. It provides the flexibility and speed you need to get the most out of your investment.
An Overview of Bridge Loans
A bridge loan is a form of short-term financing used to meet urgent and current financial obligations before long-term funding can be secured. Essentially, it is an interim financing option before you can access permanent funding. It is also accessible to both companies and individuals.
Bridge loans are known to come with high interest rates and often need to be backed by some collateral such as property. In real estate, bridge loans are often used to finance the sale of a new property while using existing property as security. This allows people to utilize the equity in their current property while being able to use it as a down payment for another property.
The application process for a bridge loan is often shorter and less restrictive when compared to traditional loans. This ease of access can help you navigate difficult situations and avoid delays. Bridge loans are also more flexible with payment terms depending on what lending option you decide on.
However, they also come with more fees and associated costs such as valuation payments and some legal fees. Furthermore, it can add to your debt-to-income (DTI) ratio which can negatively affect your ability to access other loans or mortgages.
Why You Should Get a Bridge Loan in Nevada
The Nevada real estate scene is currently booming and incredibly competitive with prices going up about 5% this year alone and properties going to pending in less than two weeks. This means that although prices are going up, homes are still moving fast. It also means it is a great investment opportunity for both business and commercial real estate owners and a bridge loan can help you secure your spot in this market.
Getting a bridge loan in Nevada is also a great way to bridge a potential business gap. Here is what we mean: several economies are currently struggling and business owners need quick capital. While Nevada’s economy has been on a steady increase, housing inventory is down because supply is limited. Investing in its real estate sector by, for example, investing in new building equipment can help you bridge the business gap and quickly recoup your investment.
How to Get a Bridge Loan in Nevada
You have several options available for you to actualize your goal of investing in the Nevada real estate market using a bridge loan. You can try:
1. Hard Money Lenders
A hard money loan is primarily asset-based and unlike conventional lenders, hard money lenders are usually unconcerned with your credit score or current financial standing. Their interest lies in the value of the asset you are placing as collateral. This means that the amount you can secure as a loan is directly tied to how much the collateral is worth. You should know that the collateral needs to be a “hard” asset. Examples are property or heavy equipment.
One of the advantages of opting for a hard money loan is the ability to secure funding despite your financial history. Hard money lenders are much more flexible and creative with payment and loan structures. However, this also comes with higher interest rates and fees to make up for the ease of access and potential risks.
2. Conventional Lenders
A conventional loan isn’t one specific type of loan. Rather, it refers to loans not directly offered or backed by the government. An example is a mortgage with a traditional bank. While conventional lenders are often associated with stability, they do not often offer bridge loans and when they do, it is heavily restricted.
Getting a bridge loan with a conventional lender usually means lower interest rates when compared to hard money lenders. However, conventional lenders are inflexible and their decision to offer you the loan will be dependent on your credit score, DTI ratio, and your general financial history.
3. Private Lenders
Private lenders or companies can be likened to hard money lenders in the sense that they are also flexible and have fewer restrictions on who they give out loans. They also often take on loans that conventional lenders will ordinarily deem too risky. This is because they set their personal criteria for giving bridge loans. Unlike conventional lenders who look at your financial history and hard money lenders who focus on your assets, a private lender’s requirements can be anything.
They can also be difficult to find as they rarely advertise their loans and may require you to build some form of rapport or personal relationship with them before they agree to give you a loan. Unfortunately, you may be unable to use the same private lender if the relationship sours for whatever reason.
Tips for Getting the Best Bridge Loan in Nevada
Now that you know what a bridge loan is and how to get one, here are some tips to ensure you get the best possible deal for your loan:
1. Know Your Standing
This is especially important if you would rather opt for a conventional lender as you need a good credit score to be able to secure a loan from them. But it can also apply to hard money and private lenders as a good credit score makes you an attractive applicant for commercial loans.
Examine your financial history and know your standing to be able to guess whether or not you will be able to get the loan. You should know that conventional lenders may be more willing to overlook poor credit if you are a business compared to an individual.
2. Don’t Rush the Application Process
This might sound counterproductive because the essence of a bridge loan is fast and accessible financing. However, rushing the application process can lead to overlooking important requirements that may cause your application to be denied. Instead, take a little time to read through the instructions and requirements before preparing and turning in your application.
You should also carefully gather any needed financial documents such as your bank statements and tax returns. Having these documents handy will also save you some time when applying.
3. Have a Killer Pitch
Before starting your application, take your time to prepare your pitch. No matter your preferred lending option, your lender will need to know your intention for taking the loan and your plan to repay it. Carefully documenting your intentions and plans for generating enough revenue to make profit and repay the loan will present you as a diligent applicant and greatly increase your chances of getting the loan.
4. Do Your Research
You should know exactly what a bridge loan entails and the pros and cons of your lending option before applying. This will help you make a much more informed decision. Furthermore, try to shop around for lending options rather than settling for the first offer. Compare interest rates, fees, and repayment structures to find one that best suits your goal.
You should also read the fine print thoroughly when applying to avoid getting stuck in an unfavorable contractual relationship. Do not hesitate to ask any important questions regarding the extra fees and costs, and the interest rate or repayment plan.
5. Have an Exit Plan
You should remember that a bridge loan is a short-term loan. You should not apply for one with a long-term goal in mind. Rather, ensure your plan is solid enough and takes into account the timeline for the loan. You should always strive to repay the loan before the deadline to avoid even higher fees and rates or losing your collateral.
Explore Loan Options With Capital Max
Although bridge loans can help you secure opportunities before it is too late, getting one also comes with risks that should be carefully considered. If you are unsure as to what loan best suits your goal, let Capital Max provide you with some guidance and professional advice.
Our experienced team of professionals will offer you the dream financial solution to all your real estate investment concerns. Contact us here today to get started!