A bridge loan is short-term financing that enables homeowners to use a home they own as collateral when purchasing a new real estate property. The funding is ideal for borrowers who wish to sell and buy a property simultaneously.

How Does the Bridge Loan Work?

A bridge loan allows homebuyers to buy a second home regardless of whether or not they have sold their existing property. The scenario occurs when the investor plans to finance a new project while the other is wrapped or in a slow seller’s market. The listed procedures make it hard for homebuyers to qualify for two mortgages, and most lenders may refuse to give out a home equity loan when the property is not listed on the market. In this case, an investor can finance the secondary property with the help of a bridge loan. The buyer will then use proceeds from the original home to pay off the loan.

Types of Bridge Loans

There are no different types of such loans. Lenders offering bridge loans extend various terms under one bridge loan umbrella. Bridge loans are, however, versatile and vary depending on repayment method, interest rate, and loan term. Some lenders require borrowers to make a lump sum interest payment once the loan term ends, while others are content with the borrowers making monthly payments. The end is slightly different, but the outcome is the same, and borrowers are advised to pay extra attention to the bridge loan terms.

Benefits of Bridge Loans

No immediate payments: Bridge loans give borrowers adequate time lasting up to one year before they can start making payments. It allows homebuyers to have enough time to streamline their finances.

Structural flexibility: Bridge loans can be used to pay off loans on a property or a tertiary loan on existing mortgages. Homebuyers can decide how much they can pay off existing loans and how much to pay for a new property as a down payment.

Adapt to market shifts: Some scenarios make it hard to sell the original property immediately. Examples include an unexpected lull in the real estate market or a work-related relocation. Bridge loans offer homebuyers adequate time to sell the property.

Bridge loans in real estate facilitate buying a secondary property even though borrowers have not sold their primary properties. Investors and homebuyers should weigh the benefits and pitfalls before committing to any financial commitment. Contact us at First Class Lending to know how you can use a bridge loan to finance your real estate.