Why would you need a bridge loan
A bridge loan is a short-term loan used to bridge the gap between buying a home and selling your previous one. Sometimes you want to buy before you sell, meaning you don’t have the profit from the sale to apply to your new home’s down payment.
When would you use a bridge loan?
When to Use a Bridge Loan
Bridge loans are most commonly used when a homeowner wants to buy a new house before selling their current property. A borrower can use a portion of their bridge loan to pay off their current mortgage while using the rest as a down payment on a new home.
What is the purpose of bridging financing?
Bridge financing “bridges” the gap between the time when a company’s money is set to run out and when it can expect to receive an infusion of funds later on. This type of financing is most normally used to fulfill a company’s short-term working capital needs.
What are the cons of a bridging loan?
The Cons of Bridging Loans
- High Interest. The comparatively high interest rates attached to bridging loans make for steeper borrowing costs on longer terms.
- Collateral. It may be impossible to qualify for a bridging loan in the first place, without enough equity to guarantee the loan.
- Fees.
How hard is it to get a bridge loan?
Without a low debt-to-income ratio, it can be hard to qualify for a bridge loan, given the cost of two mortgages. And finally, these loans are typically reserved for those with the best credit histories and credit scores.
Do you need an appraisal for a bridge loan?
However, bridge loans also come with higher interest rates than traditional mortgages and several fees, such as origination charges and a home appraisal.
What is a bridge loan example?
Example of how a bridge loan is used
You have $150,000 left on the mortgage. You take out a bridge loan for 80 percent of your current home’s value, which is $200,000. This amount is used to pay off your current mortgage and give you an extra $50,000 for your new home’s down payment.
What credit score is needed for a bridge loan?
Since the sale of the current property will automatically pay off the bridge loan, the lender can be reasonably certain they will recoup the loan amount. A credit score of 650 and above should be easily approved by private money bridge lender.