Looking to move? Found a dream home that better suits your needs? Wondering where you will find the capital in order to take the next steps? If any of these questions apply to your current situation, you may be interested in a bridge loan. Capable of bridging the gap between old and new, this loan form is one that promises to be helpful for those looking to take the next steps. What are bridge loans, and what else should you know about them? Read below to find out!
Bridge Loans: What they Are
By definition, bridge loans are loans that ‘bridge the gap’ between your current financing options and obtaining the home you want next. Bridge loans are short-term loans that allow you to borrow against a portion of your current home’s equity to provide the down payment for a new home. Your current home’s equity, or the mortgage payment versus the remaining balance on your home’s value, is used in determining this form of a loan.
Bridge Loans: When to Use
Bridge loans can be particularly useful when considering the type of move. For example, borrowers may want to place a down payment on a new home before they sell, meaning they do not have purchase income yet for the property. Bridge loans act as a catalyst between new and old by financing a new purchase. Oftentimes, bridge loans can be used for closing costs, and typically do not exceed 80% of your current home’s value with that of the new residence.
What to Expect
Bridge loans are short-term loans, meaning that they have a quick turnaround for repayment. Knowing the payment date and paying the interest on the loan can ensure a successful use of the bridge loan. Having a clear sense of the lender’s expectation for repayment date, and borrowing based on ability to repay are crucial. Also, as with most private lending, expect higher interest rates from investors.
Benefits of a Bridge Loan
There are many benefits that come with a bridge loan, especially in assessing your individual needs as a borrower.
Flexibility: With a bridge loan, you do not have to wait for your house to sell in order to purchase your next property. This flexibility helps you move on your timeline, especially in a seller’s market. You are no longer tied down to when your specific property sells.
Quick turnaround: With bridge loan funding, unlike more traditional loan processes, you can have extremely quick approval and access to capital. This allows you to purchase your next home on your timeline. Bridge loans are also attractive to sellers as they know it is real capital put down on the new property.
PMI: With enough money down, you are also able to avoid private mortgage insurance. At a rate of 20% of the down payment, you can avoid the extra insurance while also moving forward in your housing plan.
For those looking to match with trusted private lenders on your bridge loan, JMJ Funding has an array of investors who will be matched based on your borrowing needs. For your next property step, think private lending simplified with JMJ Funding.
