Why Go For a Bridge Loan

With the rising demand for real estate in today’s housing market, you have to move quickly to buy the house of your choice. In various major cities, a buyer gets at least 6 offers in a day or two after publicizing the decision to sell the house.

Unless you have additional money to purchase a new home without selling your present home, you have to time the market to get a home to buy while looking out for a purchaser for your current one. This is a tricky situation if you are purchasing a home in an area where the demand is higher than your present location. Many sellers refuse to accept 'contingent' offers (where you buy their home depending on you selling your own) due to heavy demand in the area, as is evident by various prospective purchasers.

In this competitive scenario, a bridge loan is a useful tool that helps you to prevent forgoing a time sensitive home purchase. Though a bank or private lender will ultimately provide the bridge loan, it is advisable that you learn the basics before applying for the loan.

Bridge Loan Fundamentals

A bridge loan in narrow terms means a type of second trust that is secured by your current home in such a way that the money is used to close the deal on the new home before selling your current home.

As you do no have to sell your current home immediately, taking a bridge loan is a viable solution for people in comparatively cold markets, since they have to take a quick action in order to buy a new home.

The people who opt for a bridge loan can repay the mortgage on the current home with the money, subtract any closing costs and prepaid interest, and use the rest for a down payment on the new home.

A bridge loan carries a big risk for the lender as the current home can be sold off after a time. Hence these loans have comparatively high interest rates and short duration of 6 -12 months.

The borrower generally starts paying the interest after the term expires, provided the first house hasn’t been sold.

Once the first home is sold off, the bridge loan is repaid. If the house is sold within the term limit, the unjustified interest is credited to the borrower.

Professional Bridge Loan Advice