Find Out How Multifamily and Mixed Use Bridge Loans Can Help You
Mixed-use loans refer to loans that real estate investors use to purchase buildings for a combined purpose. To technically qualify as a mixed-use building, there needs to be one commercial unit and one residential unit. An example is a restaurant with living quarters above the restaurant area. Or a large multi-story building with retail shops on the ground floor and multiple floors of residential apartments above. There are many benefits of investing in a mixed-use property, to residents, businesses, and investors alike.
Multifamily loans are for residential properties that house more than one residential unit, such as an apartment building or duplex. While mixed-use loans can be short or long-term, we’re looking at bridge loans, which are short-term loans from six months to a few years. You can get a mixed-use loan if there are at least two units with different zoning. These can be commercial, permanent construction, and government-backed loans.
What Are Multifamily and Mixed-Use Bridge Loans?
Multifamily and mixed-use bridge loans are used to purchase a mixed-use or multifamily property. Bridge loans, in general, are used to buy real estate without having to wait for conventional funding to be approved. When dealing with real estate, you may have an excellent investment opportunity that you need to quickly capitalize on and tight deadlines you need to meet. Conventional loans can take months from application to funding, while bridge loans usually only take a few days or weeks.
In some instances, you can even get funding in under 24 hours. In exchange for the quick turnaround, you will get short loan terms, higher origination fees, and higher interest rates. But the purpose of a bridge loan is to either bridge the gap between purchasing and receiving a conventional loan or renovate and flip the property and sell quickly, paying off the loan in short order. Other investors or private companies usually fund bridge loans.
How do you get a multifamily or mixed-use bridge loan?
The first step is finding a lender specializing in bridge loans, specifically multifamily or mixed-use bridge loans. It’s advisable to find a lender who has worked with real estate investors in a similar capacity as the purpose you intend your loan for and is well regarded. If you have a network of other real estate investors, talk to them and see who they’ve used and their experience. You’ll also need a down payment of around 20% of the purchase price. While it varies from lender to lender, that is a fairly standard requirement.
What is the interest rate of a multifamily or mixed-use bridge loan?
Multifamily and mixed-use bridge loans are great tools at your disposal if you wish to purchase an investment property. While the interest rates are much higher, in the 10% to 24% range, the total interest paid will be much lower due to the short term. Additionally, you’ll have to pay many of the same fees that you do with conventional financing. These include title policy fees, escrow fees, administrative fees, loan origination fees, notary fees, appraisal fees, and other closing costs or legal fees. Typically, the fees will be between 1.5% and 3% of the property value.
Who qualifies for a multifamily or mixed-use bridge loan?
One of the most significant differences between traditional financing and bridge loans is that qualifying for a bridge loan almost exclusively depends on the property. Bridge loan lenders are most concerned with what you’re purchasing and how likely it is to turn a profit. If you present a feasible, well-thought-out plan, you are almost guaranteed approval regardless of your situation. If the chance for success and the likelihood that the lender can recoup their investment if you default are high, your approval odds are also high.
As mentioned, you’ll typically need to provide a significant down payment of about 20%. The lender will also want to ensure you can make payments between purchasing and reselling the revamped property or procuring traditional financing. If you have other real estate investments, ensure you provide your profile to the lender. Lenders are likelier to work with you if you have a good track record. If you are brand new to the game, they will check your credit and use that for their determination. In addition, your credit rating will contribute significantly to the interest rate you are charged.
What are the advantages of a multifamily or mixed-use bridge loan?
The main advantage of a multifamily or a mixed-use bridge loan is quick access to capital. You get your money in days or weeks as opposed to months. Since funding via conventional loans is not guaranteed until the underwriting and review process is complete, you can be months into the process only to find out that your loan wasn’t approved. Once approved for a bridge loan, the funds become available within days or 24 hours.
Bridge loans for multifamily or mixed-use properties allow you considerable flexibility. With the quick turnaround, you can quickly act on an opportunity and make a purchase rather than wait too long and lose the property to someone else. Another advantage is that the approval process is much easier. The lender is typically only interested in the potential profitability of the property to ensure they get their money back and turn a profit. The qualifications necessary for approval are generally far lower than those required for conventional funding. These loans are usually approved by the next business day.
Another advantage is that you don’t make payments on your loan until the end of the term. You will usually only be responsible for interest payments during the loan term. This substantially reduces your monthly payments until you can sell the property or get conventional financing. Also, be aware that there may be pre-payment penalties because the short-term aspect already diminishes the window in which your lender can profit off the loan, so they may be unwilling to permit pre-payment.
When you’re ready to get started, reach out to the team at Titan Funding. Our experts can discuss the bridge loans for multifamily and mixed-use property options available to you, answer any questions, and guide you through the process. You can reach us at 855-928-0737 or contact us by filling out the secure online form.