If you’re looking to move, but are still paying on your current home, it may be time to consider a bridge loan. A bridge loan is a homebuyer’s allowance that allows them to take out an investment against their old home for a down payment on their new home. This may be a good option for you if you want to purchase a new home before you sell your old one. If you own a business, financing in this way can help businesses cover operating expenses while waiting on extra funding, such as from a job in a new location.
There are restrictions and rules regarding bridge loans. If you’re using it for real estate, for example, the bridge loan requires you to pledge your current home or other assets as collateral to secure the debt. The borrower must also have at least 20% equity on the previous home that they were trying to sell. While this means you can get out of one place and into another more effectively, this incurs more costs than simply waiting for your home to sell. Bridge loans have high-interest rates but traditionally only last anywhere from six months to a year.
What’s a Bridge Loan?
Bridge lending is a format of financing that allows both businesses and individuals to borrow money for up to a year. Bridge financing, interim financing, swing loans, and bridging loans all refer to the same method within financing that allows individuals to take from one loan and transfer it to another. When individuals take out a bridge loan, the interest rate ranges between 8% and 10%. This makes them far more expensive than long-term financial plans. Bridge loans make for an easy option for those who want to move away from their current property as soon as possible.
Bridge loan application and underwriting processes are faster than your average, traditional loan. Unlike a conventional loan, bridge loans have a maximum time scale of one year—most only last six months or less. If you qualify for a mortgage to get your new home, you may also be eligible for a bridge loan. This makes bridge lending a somewhat popular option for everyone despite the interest.
How Does Bridge Lending Work?
When a homeowner wants to sell their home and move to a new one, selling that old home and securing the funds for a new one can be a time-consuming process. It can also be difficult for new homeowners who are transferring from place to place because the sale price of their old home doesn’t cover the down payment of their new one. A bridge loan can help solve these problems, taking the loan from their current home to make a down payment on their future one. Aside from accrued interest, the homeowner loses very little in this case.
When homeowners want to begin a bridge loan, they can work with their mortgage lender to get a quick loan to bridge the time between the selling of their old home and the new purchase of their next home. While not all mortgage lenders have bridge loans as an option, online lenders typically do. Homeowners secure bridge loans with their old houses and the heightened interest rate that endures throughout the entire period of the loan. This high interest rate helps lenders stay secure throughout the loaning process.
Once the borrower sells their first home, they can use any proceeds to pay the bridge loan and then move on to handle the mortgage of the new property. If the borrower’s home doesn’t sell within the bridge loan window, the borrower will need to be responsible for paying the mortgage on their new home and the bridge loan for their previous home. While this can be a risk, ensuring that you sell your home before your bridge loan period expires can help avoid this.
When Should I Use a Bridge Loan?
Commonly, people who use bridge loans do so for one reason: They want to buy a new house before selling the property they already own. This could be the case for several reasons, related to professional or personal preferences. A borrower can use a part of their loan to pay off the current mortgage while using the rest as a down payment on the new place. A homeowner can also use the bridge loan as a second mortgage that covers the entire down payment for their new house.
If you’re considering a bridge loan, there may be a few questions that you must ask yourself. Knowing the risks of a bridge loan, how’s your selling market for your home? Doing a little research can go a long way when making a risk with more than one mortgage. If you can’t afford your new home, a bridge loan may be just enough of what you need to make the jump from one home to another, all while paying for it gradually.
One reason a bridge loan may be a great option for you is if you’re dealing with a specific kind of seller. Some sellers insist that your house is either sold or on a bridge loan before they let you start paying a mortgage on another one. This acts as a way of sellers’ insurance so that they know you’re fully able to pay for the home.
Titan Funding- Your Preferred Bridge Loan Provider
Considering a bridge loan for your move? We’d love to help. With Titan Funding, we have many kinds of lending solutions that can best fit your needs, budget, and expenses. Whether you need a permanent loan or just a short one for a few months, we have you covered.
If you’re new to this idea, don’t worry. Our expert and friendly staff will process and discuss all our loan options with you. If you want to make an appointment with one of our financial brokers or the investing team, consider visiting our location. You can also reach out to us about any of your needs from the comfort of your home with a quick call or email.