Investors sometimes get mixed up on the difference between a bridge loan and a hard money loan. Moreover, if not confused between the two, there can be a misunderstanding over which loan is best for their property investment.
So, bridge loan vs hard money – which is the right source of funding for you? We’re going to unpack that in this blog.
What Are Hard Money Loans and Bridge Loans?
Before we compare the two more closely, we’re going to define each one.
Hard money loans are an alternative to a conventional loan. These loans are privately funded and are secured solely by a real estate property’s value. As a result, it can be secured a lot quicker than traditional financing.
You can learn more by reading our hard money loans explained guide here.
Bridge loans are frequently used as a temporary source of capital while looking to secure permanent financing. Therefore, the majority of the time they’re used to bridge the gap between the purchase and the disposition of an investment property. Like hard money loans, bridge loans are commonly seen in fix and flips and other similar property investments.
Bridge Loan vs Hard Money – The Similarities
A reason so many people get mixed up between bridge loans and hard money loans is the similarities between the two of them.
Here’s a few ways in which bridge loans and hard money loans tread the same path:
– Secured by property, not money – Both of these are usually based solely on the value of the property (although on occasion, bridge loans may be provided as capital). As a result, they don’t take into account the borrowers credit rating and, therefore, are approved in much shorter time than a traditional loan. On average, around 3-7 days.
– The loan windows are much shorter – When compared to a long-term mortgage, hard money and bridge loan windows run much shorter. The average hard money loan terms are around 12 to 18 months while bridge loans typically run for 1-2 years.
– Flexible repayment options – Hard money lenders are used to fix and flip projects not going as originally planned or an exit strategy taking longer than previously determined. So you’re more likely to be afforded some wriggle room by bridge or hard money lenders.
Bridge Loan vs Hard Money Loan – The Differences
While there are some striking similarities between bridge and hard money loans, they are, however, not entirely interchangeable.
Firstly, bridge loans are not always a hard money loan. There are cases in which a bank or other lines of credit will finance your bridge loan.
If you have time on your side and a FICO score that banks will view as favorable, a traditional lender could be a good route to go down. Although, if you’re looking to secure a property quickly and your exit strategy is either a fix and flip or the BRRRR method.
, securing a bridge loan through hard money may be a better alternative.
Unlike bridge loans, hard money loans are always secured by the investment property’s asset value. Moreover, they’re always funded by private lenders – not traditional institutions.
Which loan is best for you?
We’re going to stay firmly on the fence here. When lining up a battle of hard money loan vs bridge loan – it’s hard to declare one is better than the other. That really depends on your investment.
For example, if you are looking into eventually securing traditional financing and just want to get the ball rolling, a bridge loan is probably the right option for you. However, if you have no intention of going through the arduous mortgage route and are looking to fix and flip a property ASAP, a hard money loan could be the best option.
Whatever you choose, make sure you get advice from your real estate dream team – including an experienced hard money lender. This way you can be assured that whatever option you go with, you’ve made the right call.