When it comes to purchasing a new home, people who are ready with cash in their hand win the game over those people who wait for the money to come by selling their existing real estate assets. The real estate sector is a time-sensitive market in which you have to act quickly otherwise you may lose the opportunity. If you want to be ready with cash, a Bridge loan may help you to bridge the gap between short term cash requirements and long term loans.
Go through this post once if you want to know more about Bridge loans, who offers Bridge loan and how can you get it.
What is a bridge loan?
A bridge loan is typically used in real estate transactions, usually, in case a person wants to purchase a new home but has not sold their current residence yet from which he expects to raise money. People usually face this situation when they move to a new location due to their jobs or other reasons. If you are also stuck in this kind of situation, you can apply for a bridge loan. The application approval and fund transfer take a maximum of 2 to 3 weeks but a borrower has to pay a premium interest that ranges from 8.5% to 10.5%.
who offers a bridge loan?
Hard money bridge lenders, HMBL offer bridge loans to those who have a quick requirement of money to purchase a new home. It is a short term loan that lasts, on average, from 6 months up to 1 year. The interest rate is generally higher than the conventional Banks. A bridge loan is secured either by the borrower’s existing property or by the property being purchased. If you have listed your current home for sale and have your eyes on a property that you want to buy, you can approach a bridge loan lender. If you are sure that your listed property will sell out in the expected time period, you can choose a bridge loan to finance your new property, otherwise, you may lose the property that you have put as collateral.
When to consider a Bridge loan?
Bridge loans are most commonly used when a homeowner wants to purchase a new home before selling out their existing home. The borrower can use a part of the bridge loan to pay off their current mortgage and the rest, they can use it as a down payment for their new home.
You can seek a Bridge loan in case:
- You want to purchase a new home and listed your current property for sale in the market
- You want to buy a home but the seller does not accept the contingent offer on the sale of your current property
- You can not afford the downpayment of a new property without selling the current one
Benefits of a Bridge loan
The main benefit of a bridge loan is that it allows the borrower to place a contingency-free offer on a new home, which might be the borrower’s only avenue to having the offer considered, especially if there are multiple offers.
If you have decided to purchase a new home but rely on the money that you will get by selling your current home, you may lose the opportunity to buy your dream home that you had your eyes on, due to the lack of cash. The real estate sector is a time-sensitive market. You must be ready with the money as many other buyers are also ready to purchase the same property that you want to buy. A bridge loan here is a good option. When you apply for a bridge loan, you will get immediate access to the fund. You can pay off the debt with the money that you will get by selling your current property.
Drawbacks of Bridge loan
As mentioned, borrowers have to pay a premium interest on Bridge loans. A higher interest rate and short term repayments schedule make it risky too.
If you fail to pay off within a given time period, You may lose the property that you have put as collateral. So choose the bridge loan only when you are sure that your listed property will sell out within the expected time period.
The Cost Of Bridge Loans: Average Fees And Bridge Loan Rates
A bridge loan is a convenient way to put immediate cash in your pocket but you will have to pay for that convenience. That is why the interest rate associated with bridge loans is generally higher than that of a conventional loan. The reason for charging a higher interest rate on a Bridge loan is because the lender knows that you have a loan for a short time and they won’t be able to make money servicing the loan if given for a long term. Additionally, you are required to pay closing costs and other legal and administrative fees, as you would do with a traditional mortgage. That likely includes appraisal fees, escrow, a title policy, notary services and potentially other line items that your lender will explain. And finally, you will have to pay origination fees on the loan based on the long size.