If you are planning to move, you may be facing a problem that many homeowners face. You come across the home you've always dreamt of, simply to have trouble selling your current home. It’s a cart-before-the-horse dilemma – how's it going designed to purchase the new property without the money from your sale?
Enter bridge loans. Our guide will explain everything you need to know about this kind of financing. Read on to explore the terms, the pros and cons, and whether you can apply.
What Is really a Bridge Loan?
A bridge loan is a kind of real estate financing. Borrowers can use the money to buy a brand new home prior to the final sale of their current home. As the name suggests, it essentially acts as a “bridge” involving the two housing periods.
Terms of a Bridge Loan
The relation to your bridge loan will be different depending on your circumstances and which lender you use. If you wish to see what your terms might seem like, contact Associates Mortgage loan today.
For now, let’s discuss a few of the most important characteristics of bridge loans.
Length of the Term
This type of financing is meant to give a short-term solution for all those purchasing a new home. Thus, there are no long-term options available.
Most terms have repayment periods of Twelve months or less. If you need financing with a longer repayment option, contact Associates Mortgage loan to explore other options like hel-home equity loans.
Loan Value
When considering a bridge loan, realize that lenders abide by different standards when determining how much you can borrow.
For instance, some will allow you to borrow 80% of the combined worth of the equity you've inside your current home and the property you need to buy. Others may only allow you to borrow a percentage of your mortgage that you’ve paid off.
Interest Rates
While rates of interest for bridge loans vary, they’re almost always greater than those of traditional mortgages. Count on paying anywhere from 8 to 10% from the loan’s value.
Other Fees
On top of interest rates, you’ll have in all probability to pay for an origination fee. These fees can be very high as they average around 3% of the loan’s value.
Some lenders also charge servicing fees. Many of these fees can sneak up on you, so make sure you understand the term’s fees before signing anything.
Repayments
A lender like Associates Mortgage loan will work along with you to determine an acceptable repayment plan.
In many cases, the borrower will make monthly payments plus interest 'till the end from the term. After the term, they’ll pay a final balloon payment to pay for all of those other amount due. Observe that the possible lack of repayment penalties encourages you to remove the amount due early (if possible).
Sometimes, you won’t need to start making payments until several months once you secure the borrowed funds.
When a Bridge Loan Is Appropriate
Because bridge loans include high rates of interest and stricter borrower requirements, you may turn to other financing options first.
In certain cases, however, bridge loans may be just what you have to purchase a new property.
Borrowers often use this kind of financing when they are interested a brand new house but have trouble selling their current home. Lenders can approve you within 1-2 weeks, and you’ll get the money you need to close the deal. Having fast access to cash is especially valuable in competitive housing markets.
Bridge loans can also help you secure a home, as you can present an offer with no financing contingency. Sellers will likely give preference for your offer over other people who is only going to buy if they can sell their houses.
Additionally, this can be used type of financing to cover part of the price of your brand-new home. If you have enough to pay for the majority of the down payment. However, you'll need a little extra to pay for the rest-plus closing costs. Borrowing a smaller amount will make repayment that much easier.
The Risks of Bridge Loans
Knowing “What is a bridge loan?” comes in handy, however, you should also understand its risks.
For instance, consider that lots of people rely on the sale of their current the place to find pay off the full amount. If you can’t sell your home fast, you’ll be stuck paying the loan, the mortgage on your old home, and also the mortgage in your new home.
Additionally, should you default on payments, the lender is allowed to foreclose on your old home as it serves as collateral.
Therefore, it’s vital that you determine whether you can make monthly payments plus interest. Do some calculations and consider your current budget. You should also consider what you would do around the off chance that you can’t sell your home prior to the term is up.
Who Can Get a Bridge Loan?
To apply for this sort of financing, you must have a minimum of 20% equity inside your current home. Additionally, lenders prefer borrowers who have a good credit score and debt-to-income ratios.
If you’re while rebuilding your credit, a lender like Associates Home Loan can help. We focuses on helping those with financial hardships borrow the cash they need.
The Main point here – Should You Apply for a Bridge Loan?
We’ve covered “What is a bridge loan?” and explained some of the terms, but it’s up to you to find out if this type of financing fits your needs.
It’s useful, as you’ll get the money you have to purchase a new home before selling your present property. However, it's important to comprehend the small print.
If you need more details prior to making this big decision, contact Associates Home Loan right now to talk to a specialist.