Investing in the real estate segment can be pretty confusing, sometimes. As a beginner, you’ll have to deal with new terms, understand the finances, and much more.
I mean… take an example of the commercial bridge loan and hard money loan.
Even though these terms are used interchangeably quite frequently, they’re not the same. And, in essence, their weaknesses and strengths are quite different as well.
So, let’s clear out this confusion, first.
What’s A Bridge Loan?
A bridge loan is a type of short-term money-lending process used to bridge the gap between getting and improving a house. In some cases, it may also be used to secure the next stage of financing – generally a long-term commercial loan with a better term.
Due to their simplicity, you can acquire a bridge loan much quicker than usual. Additionally, they won’t rely upon your finances. Instead, it’ll take the asset in question into account. In exchange, you’ll need to accept a high interest rate and pay a massive initial remittance.
When Should You Use It?
As it’s a short-term loan, you can take it whenever you need some quick cash for making an investment. It can also help you complete an obligation or remove an obstacle.
What’s A Hard Money Loan?
Like the aforesaid option, a hard money loan also offers a short-term solution to your issue. Thus, you can call it a type of bridge loan as well. But, here’s the catch. Unlike a bridge loan, a hard money lending procedure is a lot less scrupulous in general.
However, in this aspect, you won’t be able to keep anything else as collateral other than the hard asset you’re investing in. Therefore, the risk will be much higher in this aspect. This, in turn, prompts most lenders to ask for a high interest rate than usual. These types of loans are often used for fixing and flipping houses.
Why Should You Use It?
A hard money loan, in essence, is ideal for someone who’s not capable of getting a traditional mortgage loan or have additional requirements a traditional loan can’t meet. There’s no need to have a credit score of 720 or more in this aspect.
The Commonalities And The Differences!
Although a bridge loan and a hard loan is a little different from each other, they still do share some sort of commonalities. Let’s take a look at them first.
- Both of these loans are ideal for a short-term project. For example, if you’re thinking about buying a house for fixing and flipping, you can opt for either of them.
- The risk of the loan-lender in a hard money or a bridge loan tends to be much higher than usual. Therefore, you may not get any leverage in the aspect of the interest rate.
- The best thing about these loans is that there’s no need to do too much paperwork at all. Hence, the approval speed will be much quicker as well.
- Finally, both of these loans are quite flexible, in terms of returning the money and the proceedings. Just make sure that you’re making the amendments at the earliest.
Now, let’s move onto the differences, then.
|Commercial Bridge Loan||Hard Money Loan|
|You can get a commercial bridge loan from almost anyone, including a government-based firm or individual.||However, a hard money loan can only be taken from a private firm.|
|It might be a little difficult for you to find and accept a commercial bridge loan. Working on the proceeding might be a hassle as well.||A hard money loan is the easiest to get in comparison to any other option.|
|The interest rate of a commercial bridge loan will be higher than a conventional loan. But, it is still manageable to some extent.||The initial interest rate of hard money loaning will be much higher than bridge loan.|
Choose The Right Option!
When it comes to choosing the best possible loan, doing your homework at the earliest will be important for you. Apart from that, you have to take the interview of each of the potential lenders in-person.
This way, it’ll be easier to create a sort of peer-to-peer relationship and get an idea about their behavior or personality to some extent.
In any case, now, we’ll be finishing up this article. If you have any queries, don’t forget to ping us in the comment section below. We’ll answer you as soon as we can.