The real estate market is among the most exciting of all markets with which you could find yourself involved, but that same thrill can provide risk. Securing your finances before you move forward on a development project is vital to your success in the market. While tenured developers often have systems in place to secure financing, many developers don’t; leaving the possibility of selecting less-than-perfect loans. Especially in such a fast-paced market, securing the correct bridge loans is vital to secure your short-term financing. How do you do it? Let’s explore 3 tips to assure you select the perfect bridge loan for your project.
Secure the best interest rates – Like all short-term loans, bridge loans are prone to higher interest rates than you would find through more traditional channels. This doesn’t mean that you should settle for an exorbitant interest rate. Oftentimes you’ll find interest rates hovering around 11% on bridge loans, as market averages are 8.5 to 14% – this doesn’t mean that your potential lenders will offer similar rates. The scope and size of your project will help determine specific rates for your specific loan. Talk to your potential lenders and compare rates to help make the best choice for your needs. When it comes to short-term bridge loans, interest rates often come 2nd to more important needs, such as speed of execution by your lender to close the loan.
Be sure to know the full scope of the fees associated – Some lenders like to bury fees within the paperwork of your loan. While large development firms with big legal resources are more likely to catch these fees, smaller firms and individual developers may be prone to missing buried fees. It’s best practice to ask outright if your lender has any extra fees associated with the application and closing processes. This may not elicit direct answers, but it can help you better gauge whether or not a certain loan will catch you with hidden fees. Beyond asking directly, it is always recommended to fully read and understand the terms of your loan agreement. Fees could include; underwriting fees, processing fees, etc…
Engage in conversations about refinancing – Bridge loans are attractive because their terms can be flexible. Short-term loans are often associated with hard deadlines and high interest rates, but many bridge lenders are open to the conversation surrounding refinancing your loan as your loan terms and project develop. One of the most exciting parts of the real estate market is it’s volatility – your lender should have the capacity to understand that obstacles arise when working on a real estate development. Of course, if you default on the loan, that is your risk to assume, but that does not mean that your lender should feel as though they are engaging in predatory lending or that they are wholly unwilling to engage in a refinancing conversation.
Bridge loans are designed to serve your short term needs; finding a lending partner willing to be upfront, fast acting, and helpful to your success is vital. At EMCAP lending, our expert team of lending professionals love to see our partners succeed. If you’ve found yourself in need of a trustworthy bridge loan provider, check out our 30 second pre-qualification to see how we may be able to help your next project!