Looking To Buy A New Home? Need a loan to cover the gap between available funds and the cost of a down payment on a new home?

Bridge loans allow homebuyers to borrow against their current property to pay a down payment on a new place. If you want to buy a new house before your current one sells, a bridge loan can be a suitable alternative. This type of funding may also benefit businesses that need to meet operational costs while waiting for long-term investment.

A bridge loan for real estate requires the borrower to pledge their present property or other assets as security and have 20% equity in that residence. Bridge loans also feature rates of interest and only last six months to a year, making them ideal for borrowers who anticipate their present property to sell fast.

Also known as regulated financing, bridging loans, swing loans, and gap financing, these types of loans are usually secured by assets like the borrower’s property or other valuables. They feature interest rates ranging from 8.5 percent to 10.5 percent and are thus costlier than standard, long-term financing choices.

However, they have a faster application and countersigning process than standard loans. Furthermore, if you can get a mortgage to buy a new property, you should be able to get a bridge loan as well, provided you have the necessary equity in your previous home. These features make these loans a common alternative for homeowners who need quick access to finances to buy new properties before selling their current ones.

The highest limit you can receive with these types of loans is typically 80% of the total worth of your current house and the home you wish to buy — although this percentage varies by lender. For instance, if your present property is worth $300,000 and the one you wish to buy is worth $400,000, your lender will calculate your maximum bridge loan as follows: ($300,000 + $400,000) x .80 = $560,000

When to Use Bridge Loans

Apart from using bridge loans as described above, you can use them to submit an offer to acquire a property without having a financial contingency. A financial contingency is generally a contract provision that allows you to receive money put down without penalty if you cannot obtain financing.

In most cases, sellers avoid offers with numerous contingencies. Still, it’s essential to have safeguards in place in case you fail to secure funding.

In a hot housing market, a bridge loan can also give you an advantage over other buyers. For example, if a seller wants to sell quickly (and many do), they may be willing to sell to a buyer who can pay instantly. Because of their ease of access and speed of approval, you can have a leg up over other potential shoppers.

Lastly, a bridge loan can also be used for quick-close purchases, seasoning requirements, discounted note purchases, or payoff, among other things. Most 10 Day Bridge Loans are suitable for short-term financing of such projects.

How is a bridge loan repaid?

Bridge loans are typically repaid in 12 months or less. Most people repay their bridge loan with the proceeds from their present house — although you can use other strategies.

You may be allowed to postpone making payments for a few months after the bridge loan closes, but this will vary depending on the specific loan you received.

Advantages and Disadvantages of Bridge Loans

Advantages

• You can have instantaneous access to cash.
• These loans can provide you the flexibility to shop for real estate.
• They have a faster application, approval, and funding process than other types of loans.

Disadvantages

• Their interest rates are relatively higher.
• They’re only accessible to borrowers having at least 20% home equity.
• They’ll require you to pledge your property or other valuables as collateral,
• As a borrower, you’ll be required to pay debt service on a loan apart from your current mortgage.

So is a bridge loan appropriate for you? It all boils down to how quickly you need money, how much collateral you have and whether or not there are other better options. Nevertheless, considering their faster application, approval, and funding process, they’re a good choice if you need fast cash. Visit Our site