3 Questions About Using Bridge Loans

Posted on: 22 June 2021

Are you buying a new home but don't plan on selling your old home right away? You may be waiting for market conditions to be more favorable toward you or have a lot of work you need to do to get the home in good-enough condition to sell. If so, you'll need a bridge loan to help secure your financing. Here are some common questions you likely have about bridge loans.

What Is A Bridge Loan?

A bridge loan is where you can leverage the equity in your current home to purchase a new one, all without selling your current home. Rather than get a second mortgage, which is filled with its own origination cost and fees that can make it really expensive, a bridge loan has conditions in place where the lender knows that you will be quickly paying off the bridge loan once the sale of your old home is made. This can make it much more affordable when changing homes when there is an overlap where you have two homes for quite some time.

What Are The Conditions Of A Bridge Loan?

The main reason that a lender would give you a bridge loan rather than a traditional mortgage is that there is a plan in place to pay off the loan quickly, typically from the proceeds of the sale of your home. The lender knows that you have the cash to pay off the loan — you're just waiting for the right time to pay it off in full. That said, there may be conditions in place that require when the loan is paid off. 

For example, if you are looking into a short-term bridge loan, you may need to sell your current home within 90 days to receive your current interest rates. If you need something long-term, you may be offered a higher interest rate in exchange for that extended flexibility.

What Are The Benefits Of Using A Bridge Loan?

Bridge loans do not have any repayment penalties, meaning that you can pay off the loan in full at any time and not be hit with additional fees. The application process is also much faster because you are securing the loan with your home, rather than the ability to pay back the loan over time. You also have the option to defer the payment of the bridge loan, so that you are not essentially paying two loans at the same time. 

Think a bridge loan is best for your current financial situation with being between homes? Reach out to a lender in your area to find out more information about long-term bridge loans.