Bridge Loans for Realtors: Help Clients Buy Before Selling — Even in a Slow Market

Welcome to the Close More Deals podcast. I'm your host, Scott Dillingham. Today, I'm gonna be talking to you about an amazing tool that I personally use more on the residential, but commercial has a great, use case for it as well. But the product operates slightly different. So I'm gonna talk to you about bridge loans.

Now before you skip thinking, oh, I know a bridge loan, the way that I'm going over it today is completely unknown to most realtors, and they don't even know this is a thing. So I just wanna outline it to you. So most people think a bridge loan is when you sell your home and it's closing after you move into the new home, then the lender gives you a bridge loan for your down payment. So that is one definition. That's the common one.

That's what everyone knows. And now I'm gonna share with you how to use bridge loans in a way that nobody does that will help you to close more deals. So let's say you have a listing and it's not it's not moving. Right? Our our market is is a little bit slower.

It's not moving. And so this is more towards the residential side. So what you can do is your your buyer, right, they wanna buy this new home, but they haven't sold the other home yet. Their income doesn't support them qualifying for both loans. Right?

One on their existing and one on the new. So we've got to get them a product to move forward. So that is a bridge loan. So how it works on the residential platform is when the buyer so what they'll do is they'll end up getting it's through alternative lenders, so it's not through major banks or anything, but what they'll do is they'll give your buyer one loan that covers both properties. Right?

As long as you're under the lender's total loan to value. So then what happens is your buyer can obviously move in to the new home, and it doesn't matter that their old one has not sold. Depending on the lender, these bridge loans can go for one to two years. Now, obviously, who wants to pay higher interest for that long, but, like, it does have that flexibility. Ideally, we want the home sold right away.

So when the home does sell, these loans are set up so they're open, so you can pay them off right away. So we take all the sale proceeds, and we pay down the debt as much as possible until there's a small balance left. And then once we know that small balance, we then work with the borrower to convert that into a traditional loan, preferably with an a lender, you know, if they have the good credit and all that stuff and they qualify for it. But by doing this, obviously, there's costs, you know, a little bit higher rates. There's there's lender fees, broker fees on this program.

It ranges by client, by location, risk of the deal. Right? So let's talk, and we can, like, come up with a strategy for your borrower. But, ultimately, it's a fantastic tool because it lets them buy the home that they want today even though their home hasn't sold to give it more time on the market so it can sell. Because properties are moving if they're priced right, but sometimes they just need a little more time depending on the market.

So that's how bridge loans are generally used on residential. Now commercial bridge loans are used differently. So say you're buying a multifamily property and it's vacant. Right? A bridge loan will come into play, and they're not really looking at the income of the property because with the bridge loan, again, it's more creative.

They look at the exit strategy. So they'll lend the loan to value again and all this stuff. It all depends, and it's all different based on the client. But they'll give the client this bridge loan where they would normally get declined from a bank because the cash flow doesn't support the debts. And then we move forward.

The client will rent out the properties, or if it needs renovations, we have a lot of those too where they're adding units or renovating, you know, all the units, and so, they don't have that income to qualify. So the bridge loan comes in, and then we swap it to traditional financing, whether that's a conventional loan or if we're going with CMHC, like we kinda work with the the borrower on that plan, and we take action there. So bridge loans on commercial are fantastic for properties that don't show well or that don't have the traditional income that you need to qualify, but the new investor or the new buyer who's taking it over is gonna turn over the property. So two different style of bridge loans here that most people are not even aware of, but we do these things all the time. So if this was useful, please like, please follow, share with a friend, you know, all that good stuff.

But more importantly, book a call with somebody on our team. The the link is in the in the show notes down below, and we'll help you strategize your file or your client's file, to make it a success. Looking forward to seeing you next week.