You may have heard the terms home bridge loan and hard money loans before. They are often used interchangeably and go by a number of different names. Bridge loans sometimes go by the name bridge mortgage or swing loan. Hard money loans also go by many names like private money loans, hard cash loan, asset-based loan, private finance loans, and more. At Abbey Mortgage & Investments, we offered private lender loans and have years of experience wading through the confusing language that surrounds bridge loans and hard money loans. In today’s blog, we are going to put our experience to good use and help shed some light on the differences between Colorado bridge loans and private money loans.
Not all bridge loans are private money loans
Private money loans are short-term loans that are offered exclusively by investors and small businesses — not big banking industries. Bridge loans are offered by both private money lenders and big banks alike. While it’s not as common for banks to offer them, there are still some that offer Colorado bridge loans. However, they usually require that you use their traditional mortgage program after the term of your bridge loan when you are seeking permanent, long-term financing.
Additionally, a Colorado bridge loan from a bank or traditional mortgage lender has an approval process based on credit score, financial history, income to debt ratio, and other similar factors based on your financial responsibility. The process of qualifying for a bridge loan from a private money lender is solely based on the collateral that you offer for the loan (oftentimes it is property). If you do not pay back the private money bridge loan, then the organization who loaned it will take possession of the asset you used to receive the loan. Private money bridge loans are easier to qualify for and get your money much quicker, but they may not be right for every situation.
All of this means that there are technically both bridge loans that are also hard money loans and bridge loans that are not; therefore not all bridge loans are private money loans.
Bridge loans are strictly for real estate
One major difference is that Colorado bridge loans are exclusively used for buying real estate. Colorado bridge loans can be used to buy a house you intend to fix-up or flip and profit off of. They can also be used to buy your new home before your old one has sold. The latter is the most common since few people qualify for two mortgages and you often want to move quickly on a house you love rather than risk losing is waiting for your home to sell.
Private money loans can be used for real estate, but they are not restricted to only real estate uses. Private money loans taken out by a business can sometimes be used to make ends meet during periods of dry cash flow. Businesses sometimes have high operating costs that can be tough to cover during periods of low business. They may need emergency equipment and supplies that they can’t afford at the moment but will have the ability to pay for once business picks up. A private money loan can be a viable option for small businesses in a pinch. It’s not without risk, though — especially if business does pick up.
Commercial and residential differences
Commercial and residential Colorado bridge loans have many similarities when it comes to approval, flexibility, and speed. Both loans are used exclusively for real estate and the main differences come from the borrower who is requesting the loan. Commercial loans are granted to businesses, developers, corporations, or other business organizations, while residential bridge loans are granted to an individual.
Bridge loans and hard money loans can have different repayment period lengths or terms. Bridge loans are typically very short-term loans that and after about six months, but can sometimes be extended out to 12 months in certain situations. Private money loan terms are most commonly 12 months, but depending on the individual’s needs can be negotiated for up to a five year repayment period.
If you would like more information on Colorado bridge loans, hard money loans, or to see if you qualify for a private money loan, contact us at Abbey Mortgage & Investments! We are private money lenders with years of experience helping people and businesses fund their dreams.