Bridge Loan Basics
While some home or business owners are buying or selling a property, there are others who are doing both at the same time. If you’re in the latter category, you might also plan on using the money you’ll make from selling your commercial or residential property to buy a new property. Unfortunately, things don’t always go as planned. You might find it hard to sell your current home or business, which means it becomes financially harder to buy a new property. Learn more about bridge loans to get you over the hump and back on track.
One of the first things to know about a bridge loan is that it’s a short-term loan (lasting for a few months for a full year) applied for at a bank or with a mortgage lender. In regards to the repayment structure, bridge loans come with back-end interest payments you take care of with a lump sum, payments made upfront or regular monthly payments like you might already make with your current mortgage.
In regards to the inner mechanics of this type of financing, you can take out a loan to cover what you owe on your current home or business, factoring in the origination charges and fees as well as the closing costs. You’d want to ensure you also take out enough to take care of the closing fees and costs of your new property as well as the property’s down payment.
Once you’ve successfully moved into your new space, you’d have a new mortgage as well as bridge loan payments. Hopefully, you’ll sell your old property soon after your transition and make enough from the sell that you can pay off the entirety of your bridge loan along with any interest.
Additional Facts to Know
Know that bridge loans not only commonly come with high interest rates, they can also be difficult to secure. If you’re turned down for a bridge loan as a homeowner, you might want to consider looking into a home equity line of credit instead. You can also do yourself a favor and consider the current real estate market before applying for a bridge loan. The better the market, the better an idea it is to look into a bridge loan.
Understand the Risk You Might Be Taking
Don’t forget there’s a third party involved in this process besides you and the lender: the buyer. If the person buying your current business or home isn’t able to successfully come up with the funds necessary to take your property off your hands, you could find yourself needing another bridge over troubled waters when you’re the accidental owner of two buildings.
Bridge loans can be quite useful under the right circumstances. Know what you’re getting into, and be sure to discuss the option with a real estate financing pro.