Imagine driving to work and realizing that your dream home now has a "for sale" sign planted firmly in the front yard. In order to buy your dream home, you have to sell your existing home. The seller may not be willing to accept an offer that is contingent on the sale of your existing home, especially in a "seller's market." Enter the bridge loan.
A bridge loan is a financial product that lets you borrow the money to purchase your new home while you wait for your old home to sell. Check out a few things you need to know about bridge loans.
1. Bridge Loans are Intended to Be Short-Term Loans
A bridge loan is not intended to take the place of a conventional mortgage. Rather, it is designed to be a short-term product that lets you buy a new home without having to sell your old home first. The term for most bridge loans is usually just a few months.
Interest rates for bridge loans tend to be higher than traditional mortgages. However, many individuals find that the higher interest rate is worth the convenience of being able to buy a new home without first selling their old one.
2. Equity is Required in Your Old Home to Secure Approval for a Bridge Loan
Lenders usually require that you have a certain amount of equity in your old home in order to be approved for a bridge loan. In the lender's eyes, requiring equity in your old home helps increase the chances that you are able to sell the property for enough money to pay off the bridge loan.
How much equity you need to have depends on the lender's underwriting standards, your existing debt, and your credit history.
3. Bridge Loans Usually Have a Payment Moratorium Before You Have to Start Making Payments
Some individuals never even have to make payments on their bridge loans. This is because bridge loans usually have a stated period where borrowers do not have to make payments. This is another benefit of this product, as it gives you time to get your first home sold.
You don't have to use your cash to make payments on a loan that you plan to pay off within a few months. If your home takes longer to sell than you you originally anticipated, just make payments on the bridge loan until you find a buyer for your property.
4. The Application Process is Quick and Convenient
Lenders who issue bridge loans know that time is of the essence for individuals who need these loans. Therefore, they work to expedite the application process so that you can get the funds that you need to buy your dream home.
For more information, contact a company like Reserve Capital Group.