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Difference between Bridge Loans and Hard Money Explained
Hard Money Loan vs Bridge Loan: What’s the Difference?
Let’s clear a common misconception by stating this fact: not all bridge loans are hard money loans. But all hard money loans are bridge loans, technically — they’re just not called by that name when they’re used.
While there are no hard and fast rules to distinguish between them. The easier and faster the loan is to obtain, the more likely it’s considered a hard money loan. Regardless, both loans put a priority on speedy approval and short loan terms, providing funds for a borrower to improve, fix or flip an asset. Both loans are quick to obtain and typically don’t require much documentation.
What Is a Bridge Loan?
As its name implies, a bridge loan is a short-term financing option used to bridge the gap between obtaining or improving a real estate asset and securing the next stage of financing, usually a long-term permanent loan with better terms. For example, if you own a property that is Free and Clear of any mortgages, you can BRIDGE that equity and use it to purchase another home.
Bridge loans are usually faster to obtain and qualify for, and they rely less on the borrower’s own financials. Instead, the lender relies on their confidence in the asset in question. In exchange, the borrower accepts higher fees and interest rates. On the upside, bridge loans can be flexible as to when interest and fees must be paid by having payments potentially deferred for the duration of the loan and fees built into the financing.
What Is a Hard Money Loan?
Like all bridge loans, a hard money loan is a short-term loan with fast approval and flexible terms. Among bridge loans, hard money loans are the least scrupulous when it comes to the borrower’s financials or experience. They place the emphasis squarely on the “hard” asset in question. This hard asset used for collateral is always the investment property in question.
However, for some lenders, even this is not enough. If it’s a recourse loan, a borrower will put their personal assets on the line should they default. Whereas some bridge loans can come from institutional sources, a hard money lender is always an individual or private firm, as they don’t abide by the strict regulations that banks must.
What Do Commercial Bridge Loans and Commercial Hard Money Loans Have in Common?
- Short term
- Fast approval
- High interest rates and fees
- Flexible terms (often)
Is a bridge loan same as hard money?
A bridge loan does not have to be a hard money loan, though, and the money usually comes from banks or lines of credit. A hard loan, on the other hand, is usually financed by private investors. A bridge loan is solely for buying property, but a hard loan can be used for a number of purposes.
What are the risks of a hard money loan?
Risks of Hard Money Loans
Among them are: Interest rates are typically higher. Hard money lenders typically charge a higher interest rate because they’re assuming more risk than a traditional lender would. They may require a higher down payment than a traditional loan would.
What are the example of hard money loans?
There are various types of hard money loans available such as: fix and flip loans, refinance loans, construction loans and rental property loans.
Does a hard money loans show up on credit report?
Most hard money loans, such as fix and flip loans, will not show up on your credit report. However, you should keep in mind that this is not always the case, and you should discuss the specifics of your loan with your lender. Either way, the loan will typically appear on a background check or asset search.
Why is it called a hard money loan?
It’s called a “hard money” loan because it’s harder to acquire and pay back than its soft money counterpart. You can expect a higher interest rate with a hard money loan than a conventional property loan.
Is Hard money the same as cash?
A hard money loan is considered cash not because its similar to it. It’s because it’s different from traditional bank financing. Unlike traditional financing, a hard money loan isn’t based on the current market price of a given property. It’s based on its future after-repair value.
What is another term for hard money?
Hard money is a type of lending often used in real estate investing. Hard money loans are also known as asset-based loans, bridge loans or STABBL loans (short-term asset-backed bridge loans). Hard money loans are used for short-term financing, and the loans are always secured by an asset.