If you’re an investor, here’s how the current real estate market is impacting bridge loans for you.
Federal interest rates keep rising, tightening up money across the country for real estate investors.
The entire real estate market is feeling the squeeze of rates. Many fix-and-flips on the market now were purchased in a different market. Investors may have expected to get top-dollar for houses that now may take weeks or months to sell at all.
The Market Changes & Bridge Loans
Firstly, what changes have already occurred, and what can we expect going forward for bridge loans?
In general, you can expect the following changes from real estate leverage lenders:
- Lower LTVs – The amount of money you can get from a lender will continue to go down.
- Cutting Appraisals – Lenders expect a 5% to 15% decrease in market prices, and appraisals will begin to reflect that.
- Shortened Terms – The length of bridge loans or some lenders will be cut in half.
- Credit Score – While a 620 credit score used to be the minimum, now lenders won’t consider applicants with less than a 680.
- Pricing – Six to eight months ago, you could get a bridge loan at a 7% to 8% interest rate. Now, they’re around 10% or 11%.
Just as you might feel some uncertainty in these economic times, lenders feel it too. Lending institutions want to keep themselves safe. Unfortunately for real estate investors, that means tight money in this real estate market is impacting bridge loans.
Why Bridge Loans are Needed
Secondly, these market conditions increase the demand for bridge loans. Homes may be staying on the market longer, but lenders still need their loans paid back on time, and you still need to move on to your next project.
Now is the time to set yourself up well financially. Due to tightened conditions now, the market 6 months from now will have a lot of great deals for investors. Bridge loans can help you get ready.
With a bridge loan, you can free up the capital you have in houses on the market. Plus, you can improve your relationship with lenders by paying off your flip loan.
You can put your flipped house into a short-term bridge loan for 2 to 3 years. In the meantime, you could rent out the property, or just use the loan to pay off the lender while waiting for a buyer.
Using bridge loans in this way keeps you from foreclosure or other negative effects on your credit.
Who Does Bridge Loans Right Now?
Lastly, the following places are still lending:
- Small to mid-size banks
- Lenders that work with capital funds or hedge funds
- Small lenders, like The Cash Flow Company
- Some hard money lenders
The catch is they’ve all tightened their funds.
You can get a bridge loan from these places. You’ll just get lower LTVs, higher rates, and need a better credit score.
In this market, it’s important to reach out to any lender who can help you. Nothing will fall into your lap – you’ll have to actively search to find a loan product to fit your bridge needs.
You can also work with a place like The Cash Flow Company, who always searches for the best real estate loans available.
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