Undoubtedly, bridge loans for commercial mortgages are more difficult to secure than a traditional home mortgage. That’s because hard money commercial mortgages assume substantially higher risk with the property becoming your collateral. This means, if you default on loan payments, the lender will foreclose Moreover, because hard money lenders are willing to take the risk, they charge a higher interest and points that traditional lenders. Hard money lenders are not regulated by the Federal Reserve or the Office of Thrift Supervision. Therefore, the application process can be very different from a traditional loan from a bank. Given the higher risks involved, it’s wise to explore your options and be certain you have the items necessary to ensure your loan approval.
Carry out your due diligence – on the property and the prospective lender. Remember that, fees vary according to lenders. Before making your pitch to your potential lender, research the lenders loan criteria, current investment interests and latest loan closures. Don’t be shy about asking lenders how many deals they’ve closed in the past year. High end lenders such as New Jersey based Kennedy Funding, specialize in bridge loans for commercial property and land acquisition, development, workouts, bankruptcies, and foreclosures and have closed on loans in excess of $2.5 billion.
Find out what prospective lenders are looking for and organize your pitch – and paperwork – accordingly. For instance, make sure there are no liens or foreclosures pending. Hard facts are the only thing that matters. First and foremost is the valuation process. Make sure that your property has been properly valued by a reputable appraiser. Thoroughly check the property’s environmental aspects, to ensure that there is no toxicity and no remediation is required. Provide a detailed description of the property as well as an accurate value of the collateral property. Remember, in a hard money loan, you are financed based on the value of the collateral of the property, not your personal credit.
Outline how the funds will be used and allotted and identify your repayment plan and exit strategy. Be sure to factor in potential interest rate and the length of repayment time. This projection can give the lender an idea of how long they it may take for the loan to be paid in full. You plan should also include assets and existing and potential partners.
Develop a financial analysis that details your budget, financial projections, market trends and equity. Hard money lenders want to invest their money into a property that can guarantee repayment of the loan.