If you are looking to sell your current home and buy a new one but don’t know how to arrange funds for down payment, the bridge loan is the perfect answer. Before you proceed, you should know every clause of bridge loans, like types, eligibility criteria, and documents required for application of loans.
A bridge loan is a short-term financing option for real estate or home buyers to secure some funds for the transition from an old property to a new one. One should know these following aspects of a bridge loan financing:
• It is a short-term loan usually for 6-12 months.
• For collateral, your present home can be used.
• The interest rate is 2% higher than the other loans.
• There are no repayment penalties for paying back early.
Types Of Bridge Loans
You can use the bridge loans in the following ways:
1. Personal property: When you want to buy a new home and sell the old one.
2. Hospitality: For stabilizing cash flow and saving the allowed funds.
3. Retail: For securing a retail place immediately before its price rises.
4. Industrial: For office renovation or enlarging the company space.
5. Office: When transitioning or upgrading from one office space to another.
How do Bridge Loan Work?
A bridge loan can be helpful to pays off the outstanding loans on the current home, or it can be a second loan. If the bridge loan pays off the existing loan dues, then the rest amount can be used as down payment for the new home. In the other case, the bridge loan is the second loan on the current property which is solely used for down payment.
If you go with the first options, you will not require making installments for repaying back the loan. Once your current home gets sold, you can easily repay your bridge loan all the interest and outstanding amount.
In case, you select the second option; you have to pay for the old mortgage as well as the mortgage on the new home or property which can be more expensive and may exceed the budget of the homeowner. So, before taking a bridge loan, you must consider all these factors.
There are many mortgage lenders in Florida offers bridge loans with easy repayment policy, and all have their own set of guidelines. It is the duty of every homeowner looking for new home to have depth knowledge about mortgage lending and research the best lenders in the market that offers simple loan criteria and fast approval.