Bridge Loans: Your Key to Buying a New Home
Bridge Loans: A Homeowners Key to New Home Purchases
Bridge loans have become increasingly popular because they give new home buyers a way to finance their purchase before they sell their old home. Even though these loans may have higher interest rates than conventional mortgages, they may end up saving borrowers money because they allow home buyers to seize opportunities, wait to sell their current house to the right buyer, and maybe take advantage of better financing options in the long run. Also, since they are only expected to be short-term loans, somewhat higher interest rates should not make that large of an impact on borrowers.
Examples of Bridge Loans for Home Purchases
To understand the advantages of using a bridge loan for a new home purchase, consider an example. A family may own a home that has been put on the market because they need to move. They may want to move to upgrade to a better home, seek employment in another area, or for any of a number of good reasons. This family would like to purchase a new house quickly, but they also want to wait to fix up their old house and market it to a good buyer who will pay a fair price.
Meanwhile, this family needs money for a substantial down payment for their new home in order to take advantage of low interest rates and mortgage payments over the long term. This is a problem because they have money tied up in the equity of the current home. A bridge loan solves this problem because it provides the financing to purchase the new home.
In some cases, cash is not a problem, but it still takes time to get approved for a conventional mortgage at low interest rates. Rather than wait weeks or months for an approval, families may get approved for a hard money real estate loan within days. In some cases, interest-only real estate loans can get arranged.
Advantages of Bridge Loans for Real Estate Purchases
By now, the advantages of bridge loans for personal home purchases should be clear:
- Fast money; Hard money lenders can arrange bridge loans very quickly, and this gives home buyers the ability to close on a real estate deal quickly with cash.
- Cash buyers: Many home sellers and real estate agents prefer cash buyers, and they may offer discounts on the sales price and other incentives.
- Time to properly market and sell an old home: This gives the home owner time to fix up their old home and leave it on the market long enough to get a good offer.
Once the old home has been sold, the buyer is free to begin arranging conventional financing to replace the bridge loan. Depending upon mortgage company rules, the buyers may even be able to refinance instead of take out a new mortgage, and this can help reduce interest rates even more. Hopefully, the sale of the current home leaves the buyers with some cash to offer a sizable down payment, so they will come out of the process with substantial equity in their new property.
Besides just saving money and giving buyers the ability to act quickly, bridge loans can help private real estate buyers by giving them the ability to act quickly. This might be very important if the buyer needs to start a new job or simply wants to take advantage of a good deal that might not stay on the market long. Having the ability to secure money for a new house with a bridge loan may also reduce a lot of the stress that is normally involved in trying to sell one house and buy another one.