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Under the Basics of Bridge Loans

Bridge financing is just one the types of loans available for home owners. As most people can’t afford two mortgages simultaneously, a bridge loan is a short-term loan from a lender that’s secured by your current home to provide the necessary funds to purchase or put a down payment on a new property. Once your existing property sells, the bridge loan, plus any fees and interest, is paid in full.

While this sounds fairly straightforward, there are stipulations to understand and loan regulations set out by the bank or private lender to adhere to.

Ideally, it’s best to secure the selling of your existing property, then start looking to purchase a new home. However, if time is of the essence and funds are required in a short period of time, a bridge loan is an option to consider.

Yet, it is important to know that bridge loans can come with higher interest rates, shorter repayment periods, plus the chance that you may have to sell your existing home for a reduced price (in the event of no interested buyers) just to meet the full payment of the loan. Further, a large amount of equity from your current home of at least 20 percent (depending on the lender) and an excellent credit score are also required to even qualify for one.

So, why should you consider a bridge loan?

According to thelendersnetowrk.com some key advantages include:

  • The ability to purchase a new home without the contingencies of selling your current home.
  • You can receive financing in a shorter period of time without having to put up the cash.
  • You can put your home up for sale immediately and buy a new home without restrictions.
  • It’s an alternative to a hard money loan if you want to buy and flip a property quickly.

Additionally, according to Northwood Mortgage, bridge loans commonly come with shorter term periods (6 to 12 months and depending on the lender), which in turn, means you’re saving on paying interest rates for longer periods compared to other types of loans.

These are just some of the factors to consider concerning bridge loans. For more information on bridge loans, you may want to contact your local bank or financial institution for additional details and terms.

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