Bridge Financing: What It Is And Why You Might Need It

A bridge loan is a type of short-term loan that provides you with money at a time of high demand while you wait for another source. Businesses use bridge loans to fund their operations while waiting for a large sum of money. For homeowners, a bridge loan helps you transition to a new home before you sell your previous home. However, it is crucial to work with a mortgage broker to help you qualify with the best lender.

The name bridge loan comes from the gap this loan seals between the time you sell your current home and buy a new property. Let us look at how a bridge loan works and why you may need one.

The Alternatives To a Bridge Loan

If you are stuck on funds and need to pay for your new house, a bridge loan is convenient. However, it has a high interest rate because lenders give the loan for a short time and they want to ensure they have made enough money in the meantime. The loan may seem handy when stuck, but the cost may inconvenience you.

Alternatives to a bridge loan include;

Home Equity Loans where you can borrow money based on the value of your current property. When you work with private lenders, this loan is applicable even with a low credit score.

A Home Equity Line of Credit (HELOC) is another alternative. It works more like a credit card loan, meaning that you repay based on the amount you have used within a specific time.

A personal loan can also be another solution. If your credit score is right and you have been up-to-date with payments, you may be eligible for a personal loan to fund your project.

All these are alternatives to a bridge mortgage.

How Does a Bridge Loan Work?

The idea behind bridge financing is that it allows you to bridge the gap between the time when you sold your home and the time you close on a new one. It helps to ease the financial impact of moving from one home to another. With a bridge loan, you may be required to pay interest, but the amount will likely be lower than what you’re currently paying on your mortgage. You may have to pay a one-time upfront fee, but this will be significantly lower than what you’d pay if you were forced to extend your current mortgage. Ideally, the length of time between when you sell your old home and when you close on a new one will be short enough that you can afford the bridge loan.

Bottom Line

A bridge loan comes in handy when you don’t have money to buy a new house. If you cannot qualify with the banks to get your loan, it is crucial to look for the best private and B lenders. With the right lender, you will get the money that you need at a decent rate. A private lender is likely to offer you a better deal than a bank.