Getting a loan in California is hard enough, but competing with cash offers on properties is even harder. Timing on real estate opportunities is imperative to a successful transaction which is why it’s important to pick the right lending partner.
Depending on the type of transaction, bridge lenders may or may not require an appraisal throughout the deal. Oftentimes, bridge and hard money lenders are more flexible than traditional financing which makes the need for an appraisal dependent on the lender. Read on to learn about bridge loans and if you’ll need an appraisal for your bridge loan scenario.
What is a Bridge Loan?
A bridge loan is a type of short-term financing used to “bridge the gap” between short term and long term financing. A homeowner or investor will use this type of financing for an immediate need of cash, to capitalize on another business or real estate opportunity in the market.
What is Considered Short Term Financing?
Short-term financing is considered anywhere from a few months to a couple of years. Since these loans are short term, they carry little to no prepayment penalties. This means once the prepayment period is over, you’re able to pay off the loan and incur no penalties/cost. That’s what makes this an attractive type of loan for anyone looking for immediate cash to fund a business opportunity by using the equity in their property.
What Type of Properties Can You Get a Bridge Loan On?
A bridge loan can be made on both commercial and residential properties. Additional property types can be found below:
- Single Family Homes
- Condos & Townhomes
- 2-4 Unit Properties
- Apartment Buildings
- Mixed-Use Properties
- Office Buildings
- Retail Buildings
- Industrial Buildings
- Medical Buildings
Do Bridge Loans Require an Appraisal?
Now that the topic of bridge loans has been covered, the big question is: Do Bridge Loans Require an Appraisal? Appraisals will be an additional cost to the loan which is why borrowers try to avoid them. Secondly, they require time, which could cause a borrower to miss out on a real estate or business opportunity.
If you go to a traditional lender such as a bank, they will 100% require an appraisal on top of their stringent underwriting guidelines, which allows traditional lenders to offer more competitive rates, longer terms, as well as higher loan to values.
Also Read: A Guide to Commercial Bridge Loans
High Leverage Bridge Loans
Hard money and bridge lenders occasionally require appraisals depending on the deal specifics. If a borrower is requesting higher leverage, an appraisal is important for bridge lenders to make sure that their debt position is safe in regards to property values.
Low Leverage Bridge Loans
If a borrower is looking to stray away from an appraisal, it’s important to factor the desired leverage. Since these are riskier types of loans for these types of lenders, typically the max leverage for a hard money loan is 65% LTV. This allows these types of lenders to internally discuss the deal at hand and come up with an internal valuation.
Summing Up
There are many options for borrowers to consider when deciding if an appraisal is needed for their deal at hand. TrueBridge Loans offers both hard money and bridge loan products for borrowers throughout California. Feel free to email or call us at (805) 719-7008 and a trusted member of our staff will reach out to see if a hard money or bridge loan is right for you!
