The purpose of the construction bridge loan is to cover off a cash flow shortage that exists at some point in the project.
This can happen at any point, but typically occurs in the last 20% of construction.
Some of the reasons for requiring a construction bridge loan include unplanned cost overruns, changes in project scope, and draw cut backs or delays with the primary construction lender.
Regardless of the reason, funds are required and typically there is an urgency to locate and secure the additional capital as soon as possible.
Because of the speed required, almost all construction bridge loans are provided by private mortgage lenders that have a focus on this type of lending. In terms of all available private lenders, including those that regularly fund construction projects, there tend to be only a small number that will provide these bridge loans due to the fact that a lender needs to be able to react quickly enough to meet the needs of the borrower.
Construction bridge loan requests that are made near the beginning of the project will fall in the 65% to 75% range for loan to value on the fair market value of the project at the point where the construction bridge loan is being made.
If a request is made for a construction bridge loan when the project is 80% complete or higher, the loan to value that can be advanced can be 85% or higher, depending on the lender’s assessment of risk related to the remaining work and their own assessment of the marketability of the completed project.
Construction bridge loans are typically secured by a second mortgage against the property, registered directly behind the primary construction mortgage.
Because there are relatively few private lenders that provide this type of financing in a timely enough basis, its going to be important to be working with a private mortgage broker who actively places these types of deals and well established construction bridge loan sources.
If you are in need of a construction bridge loan for an existing project, I suggest that you give me a call so I can quickly assess your requirements and provide private mortgage financing options for your immediate consideration.