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What is a residential bridge loan?
A residential bridge loan is a short-term loan used by an individual or a company in realestate transactions to secure a second property prior to the sale of the first property, which creates a ‘bridge.’ This type of loan helps borrowers purchase their new home or property anduse the equity on their first property to secure the loan while waiting for that property to sell. Other names for residential bridge loans include interim financing, swing loans, and gap financing.
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What are the different types of residential bridge loans?
- Conventional loans
- Jumbo loans
- Government-insured mortgages
- Fixed-rate mortgages
- Adjustable-rate mortgages
When you’re purchasing a property, you will typically need to work with a lender to secure financing, as the purchase is quite large. However, not all buyers come to the table with the same financial history or background, so flexible loan options are often important in the process. If you’re looking for a more flexible short-term loan, you may want to consider a residential bridge loan.
The process of buying and selling a home can become overwhelming quickly. This overwhelming feeling is even more intense when you’re trying to do both of these simultaneously. Luckily, you have options. At Titan Funding, we offer you competitive rates, a quick mortgage process, and personalized lending to fit your budget and lifestyle. We provide you with options to consider when you need a little financial assistance. If you need a short-term, moreflexible loan option, you may want to consider a residential bridge loan.
When should you use a residential bridge loan?
The best situation for applying for a bridge loan is if you need quick access to funding to pay for a second property before your first property sells. A bridge loan is also helpful for contractors who need funds quickly to secure a property. You can consider this type of loan if you meet the following criteria:
- Sellers in your area don’t accept offers based upon contingencies.
- You expect you’ll be selling your home in the next few months and are ready to purchase your next property now.
- You can’t afford the required down payment without the equity in your current home.
- You qualify for thebridge loan based on creditworthiness and equity.
There are also several circumstances when obtaining a bridge loan
may not be worth it. These include when:
- You’re unsure of when you’ll be able to sell your current home.
- You can make a sufficient down payment without a bridge loan.
- You’re unsure of whether you’ll be able to afford two mortgages simultaneously.
- You’re in an area where you can secure financing.
What are the advantages of a residential bridge loan?
Like everything in life, there are both pros and cons regarding securing financing for a residential bridge loan. The advantages of residential bridge loans
include available equity, no second payments, fast financing, flexibility for purchasing, and no contingencies.
- Available equity. You can immediately use the equity in your current house to buy a new home.
- No second payments. You may not be required to make payments on your bridge loan immediately, allowing you to pay whenever you have enough cash flow to do so. This option is not always the case, however.
- Quick financing. Financing can be closed on a bridge loan faster than other types of funding.
- Flexibility for Purchasing. If you find a house you love, a bridge loan gives you the ability to close on a new home before your current home is sold.
- No contingencies. You can remove contingencies from your offer to buy your new home. The ability to remove contingencies may be favorable to sellers since your offer to purchase their home isn’t contingent upon your current home selling.
What are the disadvantages of a residential bridge loan?
The disadvantages of residential bridge loans include higher interest rates, equity requirements, strong credit requirements, and double mortgage payments:
- Higher Interest Rates. The rate increase is because lenders have less time to collect interest due to short loan term.
- Equity requirement. Since a bridge loan uses equity from your current home as collateral, you must have a certain amount of equity to qualify, for example, 20%.
- Credit requirements. You must typically have stable finances and strong credit history to qualify for a bridge loan. If your credit is shaky, you may not qualify.
- Double mortgage payments. If your home doesn’t sell by the time you have to begin paying your bridge loan, you’ll be responsible for paying both loans.
What are some alternatives to residential bridge loans?
A residential bridge loan can be highly beneficial when used in theright scenario and for the right person. Other types of funding may benefit you as well.
Possible alternatives to residential bridge loans include a home equity line of credit (HELOC), a personal loan, or no loan at all.
- A HELOC, or home equity line of credit, which allows you to borrow against the equity you have in your current home. Consider this loan to be like a credit card. You may be approved for a certain amount but will only pay interest on the amount that you’re using at a given time. This loan may come with a lower interest rate than a bridge loan, but you’ll be required to take out a home equity line of credit before you put your house on the market. Some lenders won’t approve once your home is for sale.
- A personal loan may also allow you to obtain a sufficient down payment to get your new home. You’ll be approved for a specified amount of money with a fixed interest rate and a fixed term. This type of loan gives you a certain amount of time to repay the loan.
- This next option may sound unappealing, but you can also opt for no loan. You can wait until your current home sells to purchase a new home.
Who is eligible for a residential bridge loan?
Not everyone is eligible for a bridge loan. The process for a bridge loan is slightly different than other types of credit. To obtain financing, you’ll find yourself subjected to credit checks and need an acceptable credit score. You’ll also need a sufficient amount of equity in your current home. Lenders, such as Titan Funding, will also verify debt-to-income ratios, loan-to-value, and your credit history.
Reach Out to Titan Funding Today
If you need a residential bridge loan or any other type of funding, reach out to Titan Funding today. Our expert team will be glad to help you through the lending process and answer any questions you may have. You can reach out to our customer support team at 855-910-6434 today. Feel free to send us an online inquiry as well, and a member of the Titan Funding team will get back to you promptly.