Have you been looking to buy a new home and wondering if bridge loans are right for you? However, before that, you have to take care of other things, such as:
If you don’t have access to ready money because your original property hasn’t sold yet, bridge loans are the ideal solution.
These loans help you secure your bid on the new property as you work out a more permanent financing solution.
In other words, you’re effectively borrowing the down payment on the new home.
“Bridge loans are temporary loans to bridge the gap between purchasing a new house and selling the old one.”
As the name suggests, this is a temporary or transitional loan to bridge the gap between purchasing a new house and selling the old one. It is typically a short-term financing option backed by some collateral and an interest component.
Before you take a bridge loan, you should understand the various terms and conditions associated with it.
bridge loans, fix and rent
The interest rate and terms vary depending on the sales price of your new home and your new mortgage.
Since these loans are high-risk, short-term loans, they usually come with a premium of approximately 2% on the market rate. The duration of a bridge loan typically runs between 6 and 12 months.
“Bridge loans are high-risk, short-term loans.”
The LTV (loan-to-value) ratio depends on the new mortgage risk. Lenders will finance up to 80% of the value of your property. Also, you might come across the following fees when taking out a bridge loan:
When making repayments, you may not require monthly payments for a few months.
bridge loans, fix and rent
The repayment terms on a bridge loan vary depending on the structure of the investment and the nature of the credit.
Say you have taken a bridge loan to finance your residential property, and you sell off your home before the loan term lapses.
In this case, the lender may not need you to make the remaining payments after you sell the house.
Instead, the lender may require you to make a balloon payment to close out the loan.
Investopedia defines balloon payment as: “A balloon payment is a large payment due at the end of a balloon loan, such as a mortgage, a commercial loan or another type of amortized loan. A balloon loan is typically for a relatively short term, and only a portion of the loan’s principal balance is amortized over that period. The remaining balance is due as a final payment at the end of the term.”
When dealing in the property market, you never know when you might come across the property that is perfect for you. Once you find your dream home, you have to make a move or risk losing it to another buyer with ready cash. That’s where a bridge loan comes in handy.
“Bridge loans help to maintain a healthy cash flow”
Homeowners are never sure when their house will sell. Plus, the real estate market does not allow you to make an offer on a property contingent on your previous home selling.
bridge loans, fix and rent
For commercial investors, these loans are often a means to maintain good cash flow.
However, for both residential and commercial borrowers, the risk associated with bridge loans is also high.
It, therefore, makes sense to weigh the pros and cons of a bridge loan to decide whether it is the right option for you.
If you still have questions about bridge loans, speak to the hard money lending experts at Gauntlet Funding. We offer competitive rates with any prepayment warranties for prime borrowers. Contact Gauntlet Funding today at (631) 465-2161.