In buying a new house or real estate, the process can be tedious and tricky. Your plans may involve selling your previous house to have the money for the new one. But plans don’t always flow smoothly. Your option may involve applying for a mortgage loan, but that would take time.
Fortunately, there is a much shorter-term solution. You can always apply for a bridge loan.
What Is A Bridge Loan?
A Bridge Loan is a short-term loan that serves as a ‘bridge’ between selling your current home and placing a down payment to a new one. This type of loan can be useful if you need to move immediately into a new home and couldn’t wait to sell your previous one. Though, keep in mind that bridge loans are more expensive than other loans, which is why it’s necessary to understand the need-to-knows about it before applying.
This loan has a high-interest rate and is backed by a form of collateral, may it be home equity, real estate property, or business inventory. This is accessible to both individuals and companies as long as they meet the obligations. Bridge loans are arranged within a short period of time and require little documentation, making it ideal for those looking to move or acquire a property immediately.
You can qualify for a bridge loan if you have at least 20% home equity. The lender would ask for your debt-income ratio as they need to consider any existing debt to know whether you can handle the added loan. Bridge Loan is also mostly reserved for those who have good credit scores and histories.
If you didn’t qualify for a bridge loan, you can try hard money loans. This is somewhat similar to bridge loans. It is financed by a private lender, who tends to be less picky than traditional institutions. This is also a good alternative for mortgage loans.
California and Texas are the leading states that offer the most money lender services. If you live in their cities, such as San Diego or Houston, you are privy and in on the best lender services in the US. You would be able to hire the best hard money lenders Houston, San Diego, and other cities under those aforementioned states can offer! With the various and multiple options of lenders, you would be able to choose the one that would fit you the best!
How Does It Work?
There are plenty of scenarios when bridge loans can help you. May it be needing to buy a new house due to getting a new job across the country or purchasing commercial real estate. One thing is definite, though – it offers a quick and short term financing solution.
The repayment period lasts for less than 12 months. It is generally used to buy real estate. It can provide you the cash you need to purchase a new home.
The lenders are given access to the equity of your old house. You can use the money you received from the loan to pay your new home’s down payment. Most people would use the money from selling their old home to pay off their full bridge loan.
Due to it being short term, it has a high interest. This would typically mean that you would have an interest rate higher than a home equity loan or a mortgage. The rates would, of course, vary among location and lenders.
Drawbacks Of Bridge Loans
Like any other loans, bridge loans do have drawbacks. It is far more costly than any other loan. It also has higher appraisal and administration fees.
It is also hard to qualify for. Borrowers would need to have a steady income and incredible credit to be eligible for bridge loans. In the case of not selling your current home, you may need to make two mortgage payments for a few months. That is what lenders lookout for the most as they have a strict debt-to-income ratio and credit requirements.
Bridge loans are, unfortunately, not for everyone. This is why it’s vital to know the risk before applying to get one. If you are still hesitating, you can always look into the alternatives of bridge loans.
There is no telling whether bridge loans are the right or wrong answer for you. It will depend on various factors such as your living situation, financial situation, and many more. It would be best to weigh the pros and cons of bridge loans before coming up with a decision.