With over 5 million existing homes being sold per year, the United States housing market is red hot. That heat has made it difficult for people to get into new houses because prices are high and competition is fierce.
This is especially true for people trying to buy a home before selling their existing one.
Fortunately, a bridge loan can help.
Bridge loans are products sold by lenders that let you borrow the down payment for a new house while you’re trying to get money from the sale of the home you’re currently living in.
Bridge loans come with many advantages and may be exactly what you need to turn the page in your life. Below, our team outlines a few key facts about bridge loans that you might find relevant to your situation.
1. Bridge Loans Give You Fast Capitol to Get Into a Home
When you take out the mortgage for a house, you’ll typically need a 20% down payment before a lender is willing to work with you.
If you’ve sold your previous home, coming up with a 20% payment for your new one shouldn’t be an issue. If you’re still sitting on your existing home though, scraping together that kind of cash can be hard.
A bridge loan will give you the down payment you need to move into your new place before selling your house. That means you don’t need to have any cash on hand to purchase a home.
2. Flexible Payment Options Make Loan Management Simple
Bridge loans are different than conventional loans in that they offer a couple of ways you can pay.
For starters, you can take on a bridge loan with terms similar to a standard loan. You’ll take out whatever amount you need, pay any fees, and then pay back your loan on a monthly schedule.
Alternatively, you can pay back your bridge loan plus any applicable interest in bulk when you sell your original residence. That means you won’t have to touch your loan at all until the cash from your home sale deposits into your bank account.
3. You Don’t Have to Pass Up a Good Deal
As we mentioned in this article’s intro, the US housing market is hot. If you see your dream home on the market today, the last thing you’ll want to do is let it pass you by because your existing home is still a couple of months away from selling.
That’s why bridge loans have become so popular.
With a bridge loan, you can confidently snap up any homes that enter the marketplace despite your financial holding pattern!
That sort of flexibility could mean scoring a deal that will save you thousands over the years!
4. Bridge Loans Are Helpful for Both Investment and Live-In Properties
A lot of people think of bridge loans as tools that are just valuable to people planning on living on the property they’re buying. The truth is though that bridge loans are a very popular tool among real estate investors as well.
As a real estate investor, you may be in the process of selling a fix & flip when another great property comes up on your radar. With a bridge loan, you won’t have to wait to sell your original investment before investing in a new one.
5. Standards For Issuing Bridge Loans are Flexible
Unlike conventional mortgage loans, bridge loans don’t adhere to strict guidelines. They are offered by banks as a portfolio investment rather than an investment they’re planning on selling up the river to Fannie Mae or Freddie Mac.
That means banks are going to be a whole lot more flexible when approving or denying your bridge loan applications. It also means that standards for approval vary widely between banks which raises your odds that at least one lender will be willing to service your loan.
6. The Home You’re Living in Now Provides Insurance For You and Your Lender
One of the scariest aspects of taking out a loan is that you might fall behind on payments and ultimately default on it. This can ruin your credit, force you into bankruptcy and can also put your lender in a bad spot.
With bridge loans however, you and your lender are protected against that possibility because you already own a property that far exceeds the down payment of your new one.
If anything goes bad that puts you behind on your bridge loan, you can always take measures to quick-sell your existing property so you can pay back your loan and avoid getting into financial trouble.
7. Competition to Service Bridge Loans is Plentiful
There is no shortage of bridge loan providers out there. Banks provide them, credit unions issue them, online lenders like AssetsAmerica.com give them out and more!
Bottom line – More competition means better rates and a higher probability of getting approved!
8. You Can Do Away With Contingencies
One of the most helpful aspects of bridge loans is that they allow you to make offers on homes without contingencies.
In a hot market like today, putting down an offer on a home with the contingency that you’ll only buy if your existing home sells is a sure-fire way to get your offer thrown out.
With a bridge loan in place, you can confidently purchase the home you’re offering on whether or not your existing property sells before the deal closes!
Wrapping Up Helpful Advantages of a Bridge Loan
If you’re trying to get into a new house but are still sitting on an existing property, a bridge loan may be able to help.
We hope that our points above have shed light on how bridge loans are helpful to home buyers and that you now feel confident in knowing that you can move into a new property if that’s what you want!
Still craving information on personal finance, real estate, and more? If so, check out more of our articles on Sweet Captcha today!