As a local Utah real estate investor lender, I’ve seen firsthand how gap lending can be a lifesaver for homeowners and investors alike. But what exactly is gap financing, and how can you take advantage of it? Let me break it down for you. You can jump to my FAQ to get answers to common questions.

What is Gap Lending?

Gap lending, also known as gap financing or gap funding, is a type of short-term, high-interest loan that fills the “gap” between the amount a property owner owes on their first mortgage and the property’s current value. This type of loan is secured by a second or third lien position on the property, making it a great option for those who need quick access to cash or want to tap into their property’s equity.

How Does Gap Financing Work?

Here’s an example to illustrate how gap lending works:

Let’s say you own a property worth $500,000, but you still owe $325,000 on your first mortgage. And you need access to $50,000 to cover unexpected expenses (see top 10 reasons below) or invest in a new project. A gap lender could provide you with a loan for $50,000, secured by a second lien position on your property. This means that if you default on the loan, the gap lender would have a claim on your property after the first mortgage holder is paid off.

A Bridge Loan vs a Gap Loan

The two biggest factors are the amount of the loan and how long the loan is for. Bridge loans are typically used to purchase properties while permanent financing is secured. Sometimes that process takes up to a year. Gap loans are typically shorter term loans that can be used for many reasons. Gap loans may be a second or third position lien. I make what I call equity loans that are typically 1 to 2 years in length and are secured as a loan against your property. You can use the money for anything including to stop a foreclosure.

Benefits for Homeowners

Gap lending, or bridge loan, can be a game-changer for homeowners who:

• Need quick access to cash for unexpected expenses or emergencies
• Want to tap into their property’s equity without refinancing their first mortgage
• Are facing financial difficulties and need temporary support

Benefits for Investors

Gap funding can also be a smart move for investors who:

• Need financing for a new project or investment opportunity
• Want to leverage their property’s equity to fund a new venture
• Need short-term financing to flip a property or cover renovation costs

How to Take Advantage of a Bridge Loan

If you’re a homeowner or investor looking to take advantage of GAP lending, here’s what you may consider doing:

1. Contact a reputable gap lender: Look for a lender with experience in gap lending and a reputation for fair rates and terms. You can also search for hard money lenders.
2. Determine your property’s value: Get an appraisal or estimate your property’s current value to determine how much equity you have available.
3. Apply for the loan: Provide the necessary documentation requested by the gap lender.
4. Review and agree to the terms: Make sure you understand the interest rate, repayment terms, and any fees associated with the loan.

10 Alternative Ways to Use Gap Funds

While there are many purposes to use gap funds for residential and investors here are 10 popular reasons why most people use funds from GAP lenders.

1. Medical Emergencies: Unexpected medical expenses can wreak havoc on your finances. By borrowing against your home equity, you can access the funds needed to cover medical bills without sacrificing your financial stability or dipping into your savings.
   
2. Home Repairs or Renovations: From leaky roofs to outdated kitchens, home repairs and renovations are inevitable.
   
3. Debt Consolidation: High-interest debt can weigh heavily on your shoulders. Consolidating your debt by borrowing against your home equity can lower your overall interest rates and simplify your monthly payments, helping you regain control of your finances.
   
4. Starting or Expanding a Business: Entrepreneurship is a journey filled with risks and rewards. If you’re ready to take the leap and start or expand your own business, using the money from a gap funding can provide the capital needed to turn your dreams into reality.
   
5. Legal Expenses: Legal battles can be emotionally draining and financially exhausting. Having the needed funds can help you navigate divorce proceedings, custody battles, or other legal challenges with confidence.
   
6. Assisting Family Members: Family always comes first. Helping your children with a down payment on their first home or supporting a loved one through a financial hardship, borrowing against your home equity allows you to provide assistance when it’s needed most.
   
7. Celebratory Events: Milestone celebrations deserve to be memorable. Financially supporting or funding a wedding, anniversary, or special gathering with loved ones, gap funds can help you create lasting memories without breaking the bank.
   
8. Unexpected Tax Bills: Tax season can bring unpleasant surprises, especially if you owe more than expected. Equity from your home can help you cover unexpected tax bills and avoid penalties or interest charges.
   
9. Funeral Expenses: Losing a loved one is never easy, and the financial burden of funeral expenses can add to your grief. You can be in a position to give your loved one a dignified farewell without adding to your financial stress.
   
10. Pursuing Dreams or Bucket List Items: Life is too short to put your dreams on hold. You can travel the world, pursue a passion project, or check off bucket list items to live life to its fullest.

Frequently asked questions

• How much can I borrow using gap financing?
  It depends on how much equity you have in your house. Typically you will need to have 25% equity in your house including our new loan to qualify. I can usually tell you with a quick phone call.
• How much does gap lending cost?
  There are title fees that are about $850 & loan fees for underwriting that can be $2000 or more. All of the fees can be built into your loan, so there are no out of pocket costs.
• Can I get a bridge loan with bad credit?
  While there are a few things I look at when determining who I will lend to, equity in your home and a solid repayment plan are the top factors.
• How long does it take to get a loan?
  It typically takes 10 to 15 days to close a loan if everything runs smoothly. It may take longer if a lien holder takes a long to to get a payoff or reinstatement. We may be able to get a loan done faster if there is a foreclosure sale date looming.
• How do the loan payments work?
  I can loan money for up to two years with interest only payments in most cases. Sometimes we can even set up the loan to be a no payment loan with the interest, fees and principal due at the end of 2 years .

How I Can Help You

As a local Utah lender, I’m here to help. If you’re interested in exploring gap lending options, use a form here or call/text (801) 382-9199 and I’ll talk with you about offering a loan to meet your needs and helps you achieve your goals.