Real Estate Investor’s Guide to Bridge Loans
If you have located a new home that you wish to purchase before the previous home has sold, the financing solution appropriate to the situation may be a bridge loan. Bridge loans are short term financing options that help you through the transition time between the sale of a home and the purchase of another. Here are some things to keep in mind while deciding whether a bridge loan is the right answer to your situation.
Basics of Bridge Loans
When you obtain a bridge loan for real estate purposes, the current home you own is used as collateral, and the loan funds cover the down payment for the home you intend to purchase. Circumstances that may make bridge loans desirable include when you’re flipping homes as an investor, buying a home at auction, or waiting for the completion of renovations before selling a home.
Advantages of Bridge Loans
Bridge loans allow you to take advantage of sudden opportunities in the housing market without first having to sell your present home. You can buy the new home without a contingency to sell the previous one, and delay the sale until you receive the right offer. Because the qualification and approval process for bridge loans is quicker than that of equity loans, you can have the funds when you need them. Depending on the terms and the lender, the first few months of payments on a bridge loan may be delayed.
Other Bridge Loan Considerations
Although you can usually obtain bridge loans faster than equity loans, they are also more expensive, and the lack of formal guidelines means that fees, terms, and conditions may vary widely from lender to lender. To be approved for a bridge loan, you have to qualify to handle two simultaneous mortgages. It can sometimes be stressful to make payments on two mortgages plus the bridge loan interest that is accruing. However, if your creditworthiness and financial situation make it possible, getting a bridge loan might be the right move for you.
For more advice on bridge loans and other financing options, contact 8th Street Capital.