Bridge Loan Rates & Fees

A bridge loan is secured against real estate. The LTV is the amount borrowed divided by the value of the property, as determined by an appraiser or broker's price opinion.

LTV is usually the most important factor in a lender’s decision.

Bridge lenders want to make sure you have enough equity in the property to protect them against a sudden downturn in the real estate market, potentially resulting in borrower default. 

A lender does not want a borrower to default; it is the worst-case scenario; however, they must always consider how difficult it will be to sell a property in this unfortunate event.

Therefore, bridge lenders prefer to lend against commercial, residential, and industrial properties in big cities in stable markets because these assets are easier to sell due to their high demand. The best rates will accompany properties in this category.

Conversely, rural properties and vacant land are much more difficult to find funding for due to the poor location and minimal use potential, resulting in higher interest rates.

Single-family homes and apartments are considered the most liquid by a majority of lenders, making assets like these easier to fund relative to a corn field in the middle of nowhere.

While not absolutely necessary, having experience always helps assure the lender that you know what you are doing. 

For projects like fix-&-flips, it is a requirement for some lenders.

Lenders may also avoid borrowing to beginners since there is an increased chance that the borrower makes mistakes and the project goes south. 

Having strong credit, a track record, and collateral will help immensely in trying to convince a lender to fund your deal.

Bridge lenders prefer to lend on properties in pristine condition, but some will lend on distressed, dilapidated properties if the LTV and your past fix-&-flips were successful.

Unfinished homes requiring renovations will inevitably have higher interest rates since construction is always a risky proposition. 

If possible, use a lender in your area with strong market knowledge. They may even want to drive out to meet you to see the property in person.

Lenders want to know upfront how you plan to repay them. Always be prepared with an answer for this question because if there is no plan, the lender will be super cautious and unlikely to fund your deal.

Direct lenders provide the capital and determine if you get financing or not; they usually charge an origination fee of 1% to 3% of the loan amount.

Brokers are middlemen who charge a broker fee of 1% to 2% of the loan amount for connecting you with a direct lender.

If you go through a broker, you will end up paying both the lender and the broker, potentially adding up to tens of thousands of dollars more than if you had gone directly to the lender.

In almost all circumstances, a direct lender will be more affordable than a broker.

Keep in mind, direct lenders control the loan approval and funding, which can speed up the process and provide more transparency, since there are fewer parties involved.

1st liens always have lower rates than 2nd liens. This is because a first lien has priority in repayment if the borrower defaults, making it less risky for the lender. Second liens are subordinate and get repaid only after the first lien is satisfied, so lenders charge higher interest rates to compensate for the increased risk.

While your financial strength is not as important as LTV or other factors on this list, it can help push you across the loan approval finish line.

Lenders measure financial wherewithal by determining if you:

• own other properties
• have a high credit score
• have a high-paying job
• or show cash reserves in the bank or other investments