Bridge Loan: What is it and When is it Used?

Buying real estate can include many different components and several different parties. There are buyers, sellers, lenders, banks, appraisers, and title companies, amongst many other possible groups, all while money might need to be transferred across accounts, paperwork needs to be created, and documentation needs to be processed.

Each stage of the purchasing process has its own timetable and requirements, and frequently, some of the steps in this process are dependent on each other. In the perfect world of buying a property, all these steps align, timelines match up, and everything goes according to plan — timing the sale of one property perfectly with the acquisition of another property or lining up the receiving of all your loans with closing on that new piece of real estate.

But what if things don’t perfectly align or if there are delays with one aspect of the purchasing process that impacts your financial standing? What if you’re in need of some fast cash because that house hasn’t sold yet or the paperwork for the 30-year mortgage hasn’t gone through yet and the down payment or closing costs for a new property you’re buying is due soon?

In these instances, when short-term cash is needed fairly quickly, a bridge loan might be a viable option to consider.

What is a Bridge Loan or Flash Mortgage?

Common in both the real estate and the business worlds, a bridge loan, also referred to by Milo as a flash mortgage, is a type of short-term loan that can support consumers who are looking to close a transaction quickly and need a faster loan application, approval, and funding process. Frequently, but not always, bridge loans are used when there is an urgent need for cash (we will get into the common use-cases for bridge loans later). They are often employed as a short-term measure to fill a financing gap — or provide a “bridge” — until the borrower can secure a loan with different terms or sell the property.

Bridge loan terms, conditions and fees can vary between transactions and lenders, but the duration of these loans generally span anywhere from 12-36 months and can usually be closed within 2-4 weeks.

When compared with conventional loans, bridge loans often have shorter terms, higher interest rates, and are considered to be easier to qualify for. Though many of these terms may be less than ideal, they often are a small price to pay for people who need a quicker mortgage solution.

In regards to Milo’s Flash Mortgage, financing can be secured for 1 or 2 years with up to 60% of the property value, and can be closed in just 10 business days. Qualifying for this loan is much easier, as neither a US credit score nor investor experience is necessary. Milo allows these loans to be used for various short-term investments, including the acquisition of 1-4 multi-family properties or to cash-out equity for other business or investment opportunities. The loan can also be paid back with no prepayment penalties or exit fees. Another important distinction is that Milo is a direct lender and lends its own capital for these loans. This can be crucial when custom situations arise.

What Are the Typical Requirements For a Bridge Loan?

The initial application process for a bridge loan is similar to that of a conventional mortgage. Most lenders will consider several different components when contemplating bridge loan applications, such as a borrower’s credit score, credit history, and debt-to-income ratio. Every lender has different requirements to secure bridge loan financing, and so it is important to confirm all documentation that is needed before submitting an application.

As previously mentioned, Milo offers bridge loans without requiring a credit score or any investor experience. With that being said, Milo does require an understanding of how the loan will be repaid since it has a shorter term. Milo’s Flash Mortgage financing is only for investment properties.

Why Would Someone Use a Bridge Loan?

In an ideal world, a borrower would never need to secure bridge financing — they would be able to secure the mortgage they need at the right time at the best interest rates. However, there are several instances in which a bridge loan might be necessary.

The most common scenarios in which a bridge loan is used is when someone may not qualify for conventional financing because they are a foreign national or because they may not be able to show enough income to qualify. This scenario is one in which many US borrowers that are retired might find themselves in, as they often don’t have current income to document.

Other instances when a bridge loan might be necessary might be if the owner of an investment property wants to buy another property or make an investment but had previously bought the property in cash. In this situation, the owner can cash out the equity and pay back the loan by selling the property or seeking additional financing.

Though there are alternatives to a bridge loan, all factors should be considered when contemplating a bridge loan.

It is important to understand all the different advantages and disadvantages to securing a bridge loan. In particular, it is important to weigh the disadvantages of paying a slightly higher interest rate and APR against the benefits of being able to receive cash extremely quickly in a much more streamlined process.

Why is Milo Offering a Flash Mortgage Now?

With all of the changes happening in the housing market and with interest rates on the rise, very few people are looking to keep their mortgage for the long run. A bridge loan can be a great short-term solution opposed to buying a property with all cash. Later down the line, if they qualify, they can access a 30-year conventional mortgage.

Recently, there has also been a contraction in the industry either by regional banks or lenders to issue mortgages, and this has accelerated the need for products such as this. Milo has always been at the forefront of delivering and creating mortgage solutions that are unique for foreign nationals, crypto consumers, and US consumers.

Additionally, there are also many new construction condo projects that will be completed over the next few years, and these projects historically experience challenges when securing conventional mortgages. There are many reasons for this, but they primarily revolve around the condo association and lack of clarity around the ownership composition of a new building.

In these instances, a Milo Flash Mortgage can be a short-term solution until a better mortgage option is available, either through Milo or another lender. The most important thing to consider in these situations is that for many buyers of pre-constructions, a bridge loan could alleviate the need to come up with additional cash at the moment it's time to close on the property.

As you can see, bridge loans have many advantages and can be leveraged effectively for the right scenario, and Milo’s loan consultants can help you decide if a flash mortgage is right for you.

To learn more, speak with one of our loan consultants today.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.