Is a Bridge Loan Right for You?
The home buying process has many twists and turns. You may find yourself in a state of limbo when you discover the perfect property to purchase but haven’t yet sold your current home. A bridge loan can be the answer to your problem.
The Bridge Loan Process
The loan gets its name because it serves as a “bridge” between one home to another. The usual routine is to use the funds to pay off your current home’s mortgage and have enough left over to cover closing costs, fees, and the down payment on your new home.
For a short time, you are paying off this bridge loan and your new home mortgage until your previous home sells. Then you can pay off the bridge loan with the proceeds from the home sale and keep whatever is the difference. Since it is a short-term loan optimally designed only to last for months, the interest rates are high so that lenders can earn a fair amount in return.
Qualified Bridge Loan Applicants
Bridge loans are designed for responsible homebuyers who can handle the burden of two debts on their books. In the past, overzealous lenders were frivolous in handing out bridge loans, contributing to housing bubbles that burst. Today, lending institutions are more cautious in offering these loans only to qualified borrowers who demonstrate fiscal responsibility and sufficient income.
Other Alternatives to Bridge Loans
If you can’t get approved for a bridge loan, there is no need to fret. As previously mentioned, this type of funding is usually reserved for persons who have strong credit and relatively high income. If you are approved for one, pat yourself on the back for being an exceptional borrower who does well with money.
Not everyone is so fortunate, and that is understandable. If you still want the flexibility borrowing can give when transferring from one dwelling to another, you may consider a home equity line of credit. Still, it is all the better if you can plan and structure things so that you don’t have to use much credit when moving. However, you should know all the options at your disposal, so you don’t miss a terrific opportunity for whatever loan you can reasonably use to facilitate the process.
As with all homebuying decisions, determining if a bridge loan is right for you requires careful attention and research. Some folks who need a little more breathing room for a short period of time can get precisely what is needed from a bridge loan.