Hard Money Vs. Bridge Loans
As we all know a hard money loan is a loan secured outside of the normal banking or lending institutions. These loans are customarily backed with collateral that is either tangible, such as real estate or some other liquid asset, or a larger downpayment. In addition often times hard money lenders have the ability to choose who they will lend to as they are in complete control of both their selection process as well as their minimum requirements.
A bridge loan is not all that different at all from a hard money loan, with only a few key differences. A bridge loan is usually made to support the transition between the sale of an old property and balance it against the cost of the new property to be moved in to. While this term is very general it should be noted that just as with the hard money loan that the definition of what constitutes a bridge loan is up to the lending party.
“A tool used by movers in a bind, bridge loans vary widely in their terms, costs and conditions. Some are structured so they completely pay off the old home’s first mortgage at the bridge loan’s closing, while others pile the new debt on top of the old. Borrowers also may encounter loans that deal differently with interest. Some carry monthly payments, while others require either up-front or end-of-the-term lump-sum interest payments.”
A hard money loan operates in much the same way, with some financial advisors going so far as to describe a hard money loan as a short term bridge loan. They share the higher interest rates then a normal subprime loan and normally feature potentially quick turn around times this is because the property itself is used as the only protection against default by the borrower, hard money loans have lower loan-to-value (LTV) ratios than traditional loans.