3 Common Mistakes Made While Seeking Bridge Finances and How to Avoid Them

Many borrowers simply do not understand how the bridge financing works as it was somewhat of a foreign concept until recently. So, while applying for bridge loans, many borrowers make mistakes that could affect the final outcome of their loan application.

Bridge loan lenders are not miscreant finance sharks who are looking to take advantage of the desperate people (borrowers). The rate of interest for a short term bridge is higher than what is provided by any conventional lender. But, these finances provide money to the businesses and individuals that don’t fit within the conventional lending box such as banks and other establishments.

But for these financing solutions, there aren’t many real estate projects with opportunities for developing and reaching their true potential. A short term bridge loan can be just the type of funding the investors require to keep their commercial investment plan running smoothly and efficiently. In this post, we will discuss about some of the common mistakes borrowers make while applying for a bridge loan and how such mistakes can be avoided.

Mistake #1: Focusing on the interest rate

Based on their experience and knowledge of this domain, commercial loan brokers can help borrowers get the lowest interest rate on bridge loans. Apart from the low rate of interest, it is important to know that borrowers should also take into consideration the time and loan fees. Common sources of bridge finance are private companies or individuals who are interested in getting better returns on their investment. A borrower could miss out on good lending options by focusing too much on the rate of interest of the bridge loan, depending on the length of time they hold the loan for.

Mistake #2: Applying for a loan without having an exit strategy

A borrower should avoid entering into a short term bridge loan without having the proper exit strategy. They should consider how many loans they are able to realistically afford and how much time they have to pay back the finances. A steep default interest rate increase is usually triggered when a borrower falls behind on their loan repayments or defaults on their finance. This sudden increase in the interest rate can be substantial and can make loan payments difficult to maintain. One of the best exit strategies for a bridge loan borrower is to borrow money when it is extremely necessary and they have a plan to pay off the loan before the end of the term.

Mistake #3: Not providing the bridge lender with a story

Traditional lenders are straight forward in their finance process. A credit report, loan application, recent bank statements and two years profit and loss statements are usually all that is required by a borrower for the purpose of pre-approval or denial of their loan. When applying for a bridge loan, story by the borrower can influence the decision of the lender to provide the bridge loan as soon as possible. With the right kind of story, a bridge lender might consider providing the borrower with quick finance in order to deal with low credit scores, tax liens, a development project and pending foreclosures. Borrowers usually spend inadequate time to explain the story behind their request for finance.

A Short Primer To Get A Canadian Commercial Mortgage In The US

Owning a commercial property in the United States is the dream of almost every Canadian citizen living in the USA. Many of them have no idea of how to obtain a commercial finance or mortgage. Certainly, purchasing a commercial property in the US presents its own challenges, if you are not a US citizen, rather a Canadian. As per a survey by the National Association of Realtors (NAR), more than half of the property transactions are done in cash in the US.

However, commercial mortgage lenders are willing to extend credit to Canadian citizens on attractive terms. Sometimes these lenders even provide credit to them without a credit history in the US. Getting a commercial mortgage depends on the residential status of the Canadian citizen. Canadian borrowers can be categorized into the below categories based on their residential status.

  • Non-permanent residents with a valid Work Visa (G1-G4, E1, E2, H1B, L1, H3, H2B, and H2A)
  • Permanent Residents with a Green Card (form 1-551)
  • Foreign nationals whose residence is not in the US

Paying for mortgage

If you are a Canadian citizen who wants to purchase a commercial property in the US, then be prepared to pay more for your commercial mortgage as US mortgages are compounded monthly as opposed to commercial mortgages in Canada which are computed semi-annually. In addition to this, there may also be tax deductible in the United States for its Permanent Residents. Whereas, there is no such tax deductible available for Canadian citizens interested in purchasing a commercial property in the United States by getting commercial mortgage finance.

How to apply for Canadian citizen mortgage?

Canadians can apply for a commercial loan in the US remotely via Email or phone, if they do not mind a few long distance charges. Most of the lenders and brokers strongly recommend that Canadian citizens should have a US business bank account via a ITIN (individual tax identification number) in order to facilitate the funding of finance and transfer of the down payments for the closing.

Some of the reputed lenders offer secured mortgages of up to 75% of loan-to-value (LTV) at very competitive interest rates. Canadian citizens can avail such finances in all 50 states of US. In order to attain maximum client satisfaction, such transactions are closed in 30-45 days. The closing of Canadian citizen mortgage should be done in person in the United States, preferably at the offices of the commercial loan lenders.

Documents required for processing of the mortgages?

  • Legible copy of valid Canadian passport
  • Copy of Canadian Credit History Report
  • Fully executed legible purchase and sale contract which is signed by all the parties Verification of funds or deposit
  • 3 months bank statements showing that they have enough funds for a purchase
  • Personal Financial Statement stating Assets & Liabilities
  • Professional Reference Letter from CPA & Personal Banker
  • Bio or Resume on the Sponsor outlining previous ownership and experience managing such sizable investment
  • property if more than a $1M.+ investment
  • Real Estate Schedule of Existing Real Estate Owned In The U.S or Canada
  • Copy of U.S Individual Tax Identification Number
  • Copy of Earnest Money Deposit or Escrow Letter
  • Canadian Primary Residence

The final thought

Many commercial loan brokers and mortgage lending companies in the US offer commercial loans to Canadian citizens after verifying their financial track record, residency status and work history.