7 Facts to Know About Bridge and Hard Money Loans

A bridge loan is a short-term loan designed to ease the transition from one home to another. A hard money loan can be a bridge loan but doesn’t have to be and is characterized as fast, non-traditional borrowing. Here are seven facts that everyone should know about hard money and bridge loans.

1. A bridge loan can be a hard money loan.

Not all bridge loans are hard money loans. Those that are generally secured by the value of the property for which the loan is assigned. If you want to renovate a property to flip it, a hard money bridge loan can help you do that but for an amount based on the current value of the property.

2. Hard money loans are a powerful tool for property flippers. 

Hard money loans are often the preferred financing option among professional property flippers because they get all of the advantages with none of the downsides. After all, the goal here is to renovate and sell as soon as possible.

3. Bridge loans allow for extensions.

Bridge loans are provided for scenarios where time frames can vary depending on forces you cannot control. An estimated dead line is established, but extensions allow some breathing room without subjecting the buyer to significant risk.

4. Hard money loans are generally geared toward unqualified borrowers.

Generally, if you qualify for a traditional fixed-rate mortgage from a bank, then a hard money loan doesn’t offer enough advantages to make it an attractive option. Nevertheless, many people don’t qualify due to divorces, bankruptcies and so on, and a hard money loan is a great tool in such scenarios.

5. Bridge loans are not the same as home equity loans.

Both bridge loans and home equity loans are secured using the property as collateral. However, bridge loans are designed for short periods whereas home equity loans can be for five years or even as long as 20.

6. Hard money loans usually take less than two days.

This is another reason property flippers love them. It is a great way to get money when you need it and for tasks they cannot necessarily plan for.

7. Hard money has low requirements in general. 

Credit checks are not required. Income verification is rare. In fact, financial disclosures of any kind beyond the property itself is usually not necessary.

If you need a bridge loan to purchase a new home or to renovate a property, then a hard money loan is an option but likely not the only one. Borrowers should determine if they are eligible for conventional borrowing. If so, then they can weigh the pros and cons of all of those options.