The Bridge-to-HUD Financing Option Explained
A bridge loan can provide investors with an immediate source of capital that can be utilized while awaiting the proceeds from a HUD loan to be funded.
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When it comes to financing multifamily investment properties, many investors choose loans backed by the Department of Housing and Urban Development. After all, HUD loans offer some of the industry’s most beneficial financing terms. They have low, fixed interest rates and some of the longest, fully amortizing term lengths of any commercial financing products. That said, even with the host of advantages that HUD loans offer to borrowers, they have also gained notoriety for taking entirely too long to originate and fund.
Of course, some would agree that HUD’s wait times are only a small price to pay when the myriad other benefits of HUD financing are taken into account. Still, timing often plays a crucial factor in the success or goals of an investment. Luckily, there is an option for investors looking to get the vastly advantageous terms of a HUD loan while still securing an immediate source of capital to deploy while awaiting permanent HUD financing: bridge-to-HUD loans.
Image by Hao Zhang from Unsplash.
What Is a Bridge-to-HUD Loan?
The bridge-to-HUD option is a simple solution to the issue presented by HUD’s notorious origination and funding wait times. Bridge financing is nothing new in commercial property investing, and it is commonly utilized whenever an investor needs fast access to funds. Bridge loans are flexible financing solutions that trade lightning-fast turnaround times for shorter term lengths — and higher interest rates.
And while that may not sound appealing by itself, it is important to remember that bridge financing is designed to be temporary, and it’s easily replaceable with permanent financing. Bridge loans (also known as gap loans) are named for the purpose of “bridging the gap” between accessible capital and a permanent financing solution. This makes them an ideal loan for investors who intend to utilize HUD financing for the long term but need an immediate capital injection. This is the very basis of bridge-to-HUD-financing.
Unlike HUD financing, which can take anywhere between six months to a year before funding becomes available, bridge loans are typically closed within 45 to 60 days. With such a rapid turnaround, bridge-to-HUD loans provide a rapid source of capital that can be used in many different ways — including anything from the fast acquisition of an asset to even funding lease-up activities or any required rehabilitation in order to meet eligibility requirements — while the origination of more permanent HUD financing is arranged and funded. Once the HUD loan comes through, it refinances the bridge loan.
2022 Sample Bridge-to-HUD Financing Terms
Loan Size: From $3 million and up
Terms: Up to 36 months
Amortization: Interest only
Maximum LTV: Up to 80% LTV (stabilized) or 90% LTC
Recourse: Non-recourse with standard “bad boy” carve-outs
Eligible Property Types: Multifamily, assisted living, and skilled nursing facilities.
Related Questions
What is bridge-to-HUD financing?
Bridge-to-HUD financing is a loan structure that provides investors with a rapid source of capital that can be used for the fast acquisition of an asset, funding lease-up activities, or any required rehabilitation in order to meet eligibility requirements for a HUD loan. Unlike HUD financing, which can take anywhere between six months to a year before funding becomes available, bridge loans are typically closed within 45 to 60 days. This makes them an ideal loan for investors who intend to utilize HUD financing for the long term but need an immediate capital injection.
The bridge-to-HUD structure also works well for acquiring an asset in need of rehabilitation. Using a bridge-to-HUD strategy gives investors the wiggle room to execute necessary capital improvements and lease up the asset to the required threshold before closing the more desirable and longer-term HUD financing.
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What are the benefits of bridge-to-HUD financing?
Bridge-to-HUD financing offers a number of benefits for multifamily investors. It provides a fast source of capital that can be used for the acquisition of an asset, lease-up activities, or any required rehabilitation in order to meet eligibility requirements. It also allows investors to access HUD financing for the long term while providing an immediate capital injection. Bridge loans are typically closed within 45 to 60 days, compared to HUD financing which can take anywhere between six months to a year before funding becomes available.
If you're interested in finding out more about bridge-to-HUD financing and how it can benefit your next multifamily investment and your bottom line, you can get a free quote with us today by filling in our form at the bottom of the page.
What are the requirements for bridge-to-HUD financing?
Bridge-to-HUD financing is a loan structure that works well for acquiring an asset in need of rehabilitation. The requirements for bridge-to-HUD financing vary depending on the HUD-insured loan program. For instance, HUD 223(f) financing guidelines require that a property must maintain an occupancy rate of 85% for at least six months prior to and throughout the financing application. Additionally, bridge-to-HUD financing typically has a loan size of $3 million and up, terms of up to 36 months, amortization of interest only, maximum LTV of up to 80% LTV (stabilized) or 90% LTC, and is non-recourse with standard “bad boy” carve-outs. Eligible property types for bridge-to-HUD financing include multifamily, assisted living, and skilled nursing facilities.
What types of commercial real estate projects are eligible for bridge-to-HUD financing?
Bridge-to-HUD financing is a great option for multifamily asset rehabilitation projects. HUD 223(f) financing guidelines require that a property must maintain an occupancy rate of 85% for at least six months prior to and throughout the financing application. This makes bridge-to-HUD financing a great option for investors who need to execute necessary capital improvements and lease up the asset to the required threshold before closing the more desirable and longer-term HUD financing.
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What are the advantages of bridge-to-HUD financing compared to other financing options?
Bridge-to-HUD financing offers a number of advantages compared to other financing options. The main advantage is the speed of the loan process. Bridge loans can typically close in 45 to 60 days, while HUD financing can take anywhere from six months to a year before funding becomes available. This makes bridge-to-HUD financing an ideal loan for investors who need an immediate capital injection while waiting for HUD financing to close.
Bridge-to-HUD financing also offers flexibility in terms of loan length and interest rates. Bridge loans are typically offered with terms of up to three years and higher interest rates than other financing options. This makes them an attractive option for investors who need fast access to funds but don't want to commit to a long-term loan.
Finally, bridge-to-HUD financing is easily replaceable with permanent financing. This makes it an ideal loan for investors who intend to utilize HUD financing for the long term.