Bridge Loans Explained
After months of research and visits, you have finally found the perfect home; now comes the intricate part, finding the right mortgage loan. You have probably heard of fixed-rate and adjustable-rate mortgages in the past but, what do you know about bridge loans?
Keep reading for a detailed explanation of bridge loans and how they work!
What Is A Bridge Loan
Bridge loans, also known as bridge financing or bridging loans, are short-term loans used until an individual or a company can secure permanent financing or remove an existing obligation. They exist to provide immediate cash flow during the period between a demand for cash and its availability.
This type of loan is commonly used in real estate transactions. If you are buying a home but your old one is still in the market, you could benefit from a bridge loan to secure your new property while avoiding a lack of liquidity.
Bridge Loan Facts
- Are short-term financing (6 months to a year).
- Generally used in real estate.
- Can apply funds towards the downpayment.
- Are the perfect solution if you need to buy before you sell.
- Can be secured using the lendee’s current home as collateral.
- Overcome cash flow-related issues.
- Are promptly accessible.
How Do Bridge Loans Work
Homebuyers often turn to bridge loans to be able to put an offer on a new home without having to sell their current residence. This makes them more attractive to sellers because they don’t depend on the sale of their current property to close the transaction.
Bridge loans’ terms, fees and conditions can vary; some require monthly payments while others ask for larger upfront charges.
The process to apply for a bridge loan is similar to that of applying for a standard mortgage. Lenders will take numerous factors into account when determining whether you are eligible; credit history, credit score and debt-to-income ratio are only a few of them.
Additionally, most bridge loan lenders allow applicants to borrow up to 80% of their loan-to-value ratio, a measure that compares the amount of your mortgage with the appraised value of your property.
Bridge Lenders In Your Area
Mansby Capital is a leading bridge lender serving builders and real estate investors. We specialize in land acquisition, multifamily acquisition, new construction, and rehabs. We know that speed matters and can close even the largest loans in a short time.