A bridge loan is a short-term loan that provides interim (in-between) financing for businesses and individuals. Generally, they are taken out in medium to higher amounts for a few weeks to a few years. They help the person or business stabilize financially until they find a more permanent source of financing or until the business is able to build its capital up.
As the business or person progresses financially, they may be able to pay back the bridge loan with their new financing or profits. Thus, bridge loans can sometimes be a better option and more successful in the long run. A bridge loan can sometimes be used in a real estate setting to help close a deal or prevent foreclosure.
What Are Swing Loans?
Swing loans are mortgage loans that help borrowers who are in the process of transitioning from one home to another. It is common for mortgages to be backed by only one property (the home in question).
Unlike traditional loans, swing loans are backed by both the borrower’s current residence and the home they are about to move into. It is possible that the combined properties would provide better collateral than if only one property were used.
When Are Swing Loans Used?
Swing loans are often referred to as “bridge loans,” which are short-term loans that need to be obtained quickly to accomplish a specific goal. An individual and their family use the swing loan specifically to close the property sale transaction and move into the new home.
Swing loans are commonly used when the borrower hasn’t been able to sell their home. With a swing loan, they can purchase a new home and use the equity in their first home to provide down payments.
What Are Some Characteristics of Bridge Loans?
Bridge loans sometimes have the following characteristics:
- Shorter/easier approval steps (since the loan is often paid back in a short amount of time)
- May be associated with higher monthly/term payments
- May be associated with higher interest rates
Bridge loan terms can vary depending on the lender’s offer and the amount of risk involved (bridge loans can sometimes carry a default risk for the borrower).
What Is the Difference Between a Bridge Loan and a Hard Money Loan?
Hard money loans are secured by real estate (either residential or commercial). Hard money loans and bridge loans both tend to be used “in a pinch” or during hard financial times. In addition, both are associated with less strict, informal lending approval processes.
On the other hand, hard money loans generally require collateral in the form of property interests. The term “bridge loan” refers to a loan with a shorter term and a specific purpose (to achieve longer-term goals). Hard money loans are backed by property, but bridge loans are not.
What Are the Main Steps for Getting a Loan?
There are two main steps in the overall loan process: the loan origination and loan servicing.
Loan origination focuses on all of the steps up to the approval of the loan. These include:
- Shopping for a lender or lenders
- Determining the loan amount, and the intended use of the loan
- Preparing financial and legal documents for the loan application
- Negotiating with lenders regarding loan amounts, payment terms, and interest rates
- Filling out loan forms and waiting for approval
- Paying the required loan fees
Loan servicing involves the actions taken after the loan is approved, including receiving loan amounts, making monthly payments, and adjusting terms if needed. The exact process may be different depending on the type of loan.
What Are Some Tips That Can Increase My Chances of Getting a Loan?
There are several steps you can take to increase your chances of getting a loan. For example, you should:
- Prepare your credit score: This includes “repairing” any negative aspects of your credit that you can, such as outstanding debt.
- Determine EXACTLY how much you will need: If you are applying for way more than you can afford to pay back, you likely will not be approved.
- Avoid short-term “bad credit” loans and payday loans, which can be associated with higher interest rates: In the long run, these can lead to more debt.
- NOT applying until you are ready to commit to that lender: Applying to a loan can negatively affect your credit score. If you are applying for multiple loans, your credit may reflect negatively.
It sometimes helps to apply to the same lender you have previously worked with. When you are a preferred or valued customer, they may offer you some deals based on your information.
Are There Any Legal Issues to Consider with Swing Loans?
Real estate swing loans can sometimes be complicated arrangements. Due to the fact that the person is in transition, and two different properties are involved.
Multiple parties may be involved, such as real estate agents, property appraisers, and mortgage lenders. Disputes over swing loans may include:
- Issues regarding loan terms and interest rates
- Disputes regarding loan qualification and approval
- Contests regarding the outcome of an appraisal (i.e., regarding the value of the home
- Loan fraud issues
- Borrower default/breach of contract
Swing loans can therefore be associated with a variety of issues. A lawsuit for damages may be necessary if one party loses profits or opportunities due to the dispute.
What If I Have a Legal Dispute over a Bridge Loan?
Legal action may often be required to resolve loan disputes. Non-payment or defaults are common causes of disputes. Litigation may result in damages awards to compensate the non-violating party for losses. Whenever you are involved in a lawsuit, you should prepare all the loan and financial documents that may be relevant.
Lastly, you should always protect yourself from loan fraud and predatory lending. You should never give your personal information to persons or companies that seem suspicious or disreputable.
Bridge loans can be associated with various legal conflicts, including:
- Cases of lender or borrower fraud;
- Breaches of contract;
- Default/non-payment, and various other legal issues.
In such cases, these disputes can lead to lawsuits for damages, fines for statutory violations (for the lender), and negative effects on credit scores. In such cases, a legal investigation into the matter may be necessary, especially if the dispute is widespread among a larger consumer base.
Should I Hire a Lawyer for Help with Bridge Loans?
A bridge loan can help a person or business accomplish a specific long-term goal. Borrowers should be aware of the risks and drawbacks associated with these loans. You may wish to hire a qualified credit lawyer if you need help applying for, renegotiating, or dealing with a bridge loan. Your attorney can explain your rights under your area’s laws and help you file a lawsuit if you encounter any legal conflicts that need resolving.
A loan application can involve many steps, and the process can be complicated, especially for larger loans. If you need help getting a loan, you might benefit from hiring a credit lawyer. To determine your best options, your attorney can research the laws in your state. In addition, your lawyer can represent you in court if you need to file a lawsuit due to a loan dispute.