If you’re a first-time home buyer (or already own a home), you’ve heard of mortgages. You have your conventional loans, FHA loans, VA loans, USDA loans etc. But there is another type of loan that not many people know about that can make the home buying process much easier. Yes, we are talking about a bridging loan. You have not heard about it? Put simply, a bridging loan “bridges the gap” between sales. Buyers use these temporary loans to finance their new home while they wait for their current home to be sold. Find?
How it works?
Not all lenders offer a bridge loan the same way. With regard to these loans, what is important is whether or not they correspond to the specific goals and needs of the individual. However, there are two popular options that lenders use with buyers.
Even more for real estate enthusiasts
The first option, a lender provides funds that equal the difference between up to 80% of the value of the buyer’s home and his current loan balance. The second mortgage goes towards the advance payment for the second home, while the first mortgage remains the same until the house sells and the mortgage is paid off.
The second option, buyers take out a loan of up to 80% of the value of their home. With this money, they pay off their first mortgage. The funds for the second mortgage are then applied towards the down payment for the new home.
As with any loan, there are positive and negative aspects. The main advantage of a bridging loan is that buyers can make a “no-contingency offer” on a new home, without selling their existing one. This means buyers don’t have to wait to buy their dream home until their old one sells out. That said, a bridging loan has higher interest rates and only lasts between six months and a year. And even if your home doesn’t sell during that time, you’ll still have to pay off your loan. You must also qualify for two homes and be able to pay two mortgage payments at a time.
Should you apply?
There’s no denying that a bridging loan can be handy if you’re ready for a change but don’t want to risk a conditional offer. A bridging loan can also be a good way to finance a new home, in case you need to move for a job. But a bridging loan comes with a higher interest rate. In fact, most bridging loans are somewhere between 8.5% and 10.5%. Plus, paying two mortgages and making payments on your bridging loan can be stressful, especially if your existing home isn’t selling as fast as you might expect. We recommend talk to a BridePayday lending for advice.