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Multifamily Bridge Loans

What are multifamily bridge loans?

Multifamily bridge loans are designed for short term financing. Bridge loans buy the borrower time to secure long term financing and allow borrowers to meet their debt obligations as this loan type offers immediate access to capital.

Benefits

The benefits of a multifamily bridge loan are faster application process, faster rate of approval, faster access to funds, and no prepayment penalties. Unlike a typical loan that often takes 90 days or more to close; bridge loans can be secured within 30 days or less. Rather than the normal weight put on creditworthiness in traditional loans, bridge loans place more weight on the collateral.

Negatives

The negative of a multifamily bridge loan are the high origination fees (around 3% of the loan value), high interest rates as the lenders are incurring more risk, and the length of the term.

Temporary

Bridge loans are meant to be used a source for temporary funding to buy the borrower time to secure permanent financing. Borrowers can often role the bridge loan into permeant financing with the same lender.

When to use a multifamily bridge loan?

Multifamily bridge loans are often used when immediate financing is needed but there are other reasons as to why a borrower might want to turn to a bridge loan, such as:

  • Needing immediate access to capital to close a deal quickly
  • To take advantage of an investment opportunity in the market
  • Temporary financing till permanent financing is secured

Advantages

Loan amounts are sized based on the total cost of the project which is a great advantage for the borrower as the qualified loan amount will be greater.

How are the funds managed?

Lenders might issue the project funds directly to the current owner of the multifamily property, rather than issuing the funds directly to the borrower. The current owner would receive the funds in either a lump sum payment or in monthly installments. Lenders go directly to the current owner to decrease the risk of the funds being misused.

How to repay a multifamily bridge Loan?

Lenders will require you to pay the loan back within 12-24 months. In some cases, the borrower will be start making monthly payments at the term of the loan. In most scenarios, the lender will require a balloon payment at the end of the loan.