Image by 3D Animation Production Company from Pixabay
Understanding the type of loan you're getting matters, to protect your financial interests. You also need to know when to choose one type of loan over another. So, should you choose a bridge loan? When might that be the best choice for getting into the home of your dreams? Here's what you need to know about this particular loan type.
Bridge loans typically provide temporary home financing, and are designed for use for six to 12 months. They carry an interest rate that is approximately two percent higher than a standard mortgage. These loans can "bridge" the gap between buying one property and selling another, allowing the borrower to get into a different home before their original home is sold and closed.
Anyone who owns a home and is trying to buy another one could potentially get a bridge loan. Just as with a traditional mortgage, though, you would have to qualify. Income and equity requirements must be met. There is also usually a debt-to-income ratio that's very important, since you'll have to make loan payments for a few months.
When you're selling your home but you haven't found a buyer yet, you might find another home you want to buy. Since you don't have the funds from the sale of your current home, you wouldn't normally qualify to buy the other home. If you can get a bridge loan, though, you can buy the second home while still trying to sell the first one. When the first one sells and you receive the proceeds, you can use that money to pay off the bridge loan. Bridging that gap between the financing for the two homes can be vital in markets where housing is very competitive, or where you need to move quickly to purchase a particular home.
Getting a bridge loan involves talking to your bank or other lender, just like you would with another type of loan. Not all lenders offer bridge loans, so it's important to shop around. Additionally, your real estate agent can be a great resource when it comes to finding a bridge loan. Some agents even partner with lenders for these kinds of loans, to give their clients more options.
If you're not sure whether a bridge loan is the right choice for your home buying and selling needs, talking to your lender and real estate agent can help. There are times when borrowing additional money isn't a good choice, but these kinds of loans can also be very beneficial in certain real estate circumstances.
Eileen is a Licensed Real Estate Salesperson and has been in the industry since 2004. Her experience in home sales range from a $4,000,000 single family home to a $100,000 Co-op. She covers both Westchester and Putnam County and works with both buyers and sellers. "My love for Westchester and particularly the Hudson River Valley is one of the many reasons why I enjoy working in real estate". She is a lifelong resident of Westchester County. She grew up in Tarrytown and moved to Briarcliff Manor where she raised her family. She received her MPA from Pace University and worked many years in the Human Resources field. She held the title of Vice President of HR for the largest teaching hospital in Westchester and Director of Classification and Compensation for one of the largest employers in Westchester County. After a successful HR career, Eileen decided to retire to make a full time commitment to her real estate clients. Outside of work you can find Eileen on the Tennis, Platform, or Pickleball Court along with Hiking in Westchester or the surrounding counties.