A bridge loan is a loan that is not commonly thought of, but one that can help the process of purchasing a new home easier. Bridge loans can help someone looking to purchase a home buy before their current one is sold. A bridge loan is typically approved more quickly than a traditional mortgage, with closing only taking 10-15 business days, because it requires less documentation of income, so it is helpful when funds are required in a hurry.
A bridge loan is a short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. Bridge loans can be used in many situations, for example they can be used when someone is purchasing a home before their current home is sold or when funding is needed quickly such as when purchasing a home at an auction or on a house with multiple offers.
Bridge loans are not the exact same everywhere you go, they can vary from state to state and even lender to lender. Some lenders offer monthly payments while others require upfront payments or end-of-the-term lump-sum interest payments. Often times bridge loans are extremely flexible and they are designed to be paid off quickly.
A bridge loan is generally approved quickly relative to a traditional mortgage because less documentation of income is required. Payment is flexible because there are many options. A borrower can pay the loan back in monthly payments or even an end-of-term lump sum payment: and if necessary the loan can be extended up to another year after the original expiration date for a small fee, with interest rates as low as 6%. Usually there are no prepayment penalties because if the loan is paid back on time then there is no extra interest earned.
Bridge loans are also designed to protect the borrower as most are non-recourse, which means that only predetermined items may be seized as collateral even if the sum of the loan is not covered. Non-recourse helps protect the other assets of the borrower more than a traditional mortgage because with a traditional mortgage.
Bridge loans can help people in many situations, they can help buyers purchase a new home before their current home has sold and they can even help fund renovations that need to occur before a house can sell. They are meant to provide funds quickly at a low price and will help bring the dream to life while funds are short.