Short-term (usually one to three years) loan purpose – to cover the period between the termination of one loan and the start of another. It is arranged generally to complete a purchase (such as a new house) before the borrower receives payment from a sale (of the old house), or – for construction or rehab of a property. Also called bridge finance, or gap financing.
Creative uses of Bridge Loans:
1. Allows for purchase of property and gives Borrower up to 12 months to improve his credit score and obtain permanent financing.
2. Puts property in Borrowers name which allows for costly rehab needed to secure long-term Bank Loan. Borrower investment is protected
because the property is in Borrower’s name.
3. When a property is in Borrowers name they may use the equity in the property to draw cash out.
4. Usually no pre-payment fee on Bridge Loans.