Sometimes you need cash to fill a gap, such as covering payroll, jumping on a smart investment, improving a property, and so on. You have several types of loan options to choose from, but when you need cash fast, getting a bridge loan from a hard money lender is often the most expedient path. If you’re doing your first real estate investment or adding to your existing portfolio, a bridge loan can be used to help you be more competitive with an offer that isn’t contingent on the sale of another property.
How Does a Bridge Loan Work in California?
A bridge loan is a short-term loan that helps you cover a gap until you can either repay the loan or get a conventional loan with a longer term. Getting a bridge loan in California is the same process as anywhere else in the country. Apply to a lender, and provide the requested information and documentation.
If you want to get a bridge loan from a private lender, the application process is similar to that of a regular mortgage loan, although the interest rates and terms are quite different. A private lender will look at your credit history, debt-to-income ratio, and other financial information.
When you work with a hard money lender to secure a bridge loan, the decision to lend to you is based on how much equity you have and what you plan to do with the cash—not on your financial history, credit score, or other factors. Most private lenders will require some kind of business purpose or investment purpose for the cash-out, including purchasing other real estate investments or a cash injection into a growing business.
5 Tips for Getting a Bridge Loan in California (or Any Other State)
Getting a bridge loan starts with finding a trusted lender and building a relationship with them. Follow these five tips when evaluating your options.
1. Research lenders.
Bridge loan lenders are not all the same, and it’s worth taking the time to do thorough research. Ask about terms, fees, and rates to compare multiple lenders and go beyond the numbers. Ask for references, and look at success stories and testimonials to learn more about any organization you’re considering.
2. Talk to a real person.
If you can’t reach a lender you are considering or connect with a real person, it’s a red flag. Building a strong relationship with your lender is the best way to generate trust on both sides and have the ability to quickly secure loans in the future. A nonresponsive lender could cost you a deal and a lot of money. As with any relationship, good communication is essential.
3. Work with a direct lender, not a broker.
If you’re asked to pay a fee to find a bridge loan, chances are you’re working with a broker. This is also a red flag and could potentially be a scam—especially if they repeatedly ask for more fees without delivering a lender. This fee is not to be mistaken with the standard appraisal and 3rd party vendor fee. Those are usually required either way. Find a direct lender that has control of funds. You can do this through a broker you trust or by reaching out to a direct lender.
4. Prepare your documents.
Lenders might ask for certain information; being prepared expedites the process. Some of the personal financial information you might be expected to provide includes bank statements and tax returns. Most bridge lenders are highly flexible and will fund with minimal documentation.
5. Pitch the deal.
Lenders want to know that they’re making a smart decision when they lend to you. Explain why you need the cash and how you intend to repay the loan. Be honest and up front with the lender. Bridge lenders know they're not your first lending option. Trying to hide negative deal points will only end in stress once it's uncovered through the underwriting process. Being up front will allow the lender to properly structure the loan and ensure an easy path to closing.
Bridge the Gap with Socotra Capital
Whether you’re seeking a bridge loan in California or any other state, Socotra Capital is here to help. With roots in California and locations throughout the country, our team is built on a foundation of approachable, neighborhood lending.
To learn more about bridge loans and how they can help you build your real estate portfolio, check out The Borrower’s Guide: Process, Preparedness, and Timeline.