How are bridge loans used in real estate?
Bridge loans are often used in investment or other business deals as a quick way to get financing while waiting for long-term financing. Consumers use these loans mainly in real estate transactions.
Some common bridge loan scenarios might include:
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- Urgently relocating for a new job or opportunity before you can sell your current home
- Needing to put a 20% down payment on a home to avoid private mortgage insurance (PMI)
- Wanting to make an offer on a home without a contingency that depends on the old house selling first
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Especially in a seller’s market when competition is high, a buyer will be much more appealing to a seller if they don’t have to wait for the home to sell.
Borrowers in need of a bridge loan often will use it in the following ways:
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- As a second mortgage so they can quickly put a down payment on a new home until they can sell their old one
- To pay off the mortgage on their old home and use the remaining funds as a down payment
- To build a new home while they wait for the old one to sell
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If you’re considering a bridge loan, you most likely don’t have time to wait to sell your current property and need funds now.
However, you should first determine whether the benefits outweigh the drawbacks before you get this type of loan.
What are the pros and cons of bridge loans?
The biggest drawbacks to getting a bridge loan include the stress of potentially managing two mortgages at once and owning two homes, and the possibility that you will have trouble selling your old home.
These are the risks that come with taking on this type of loan. For many, though, the need to move forward quickly is much more pressing than the risks.
The interest rates and requirements will depend on your lender, so those can’t necessarily be considered a con until you know the full details.
Typically, getting a bridge loan from a traditional lender is difficult and sometimes impossible, so some may consider this a drawback. Fortunately, there are hard money lenders that can simplify and speed up this process significantly.
Benefits of bridge loans
Now that you know the downsides, let’s celebrate the positives.
For those in time-sensitive situations or periods of uncertainty, a bridge loan can offer needed security and precious time.
This short-term solution provides fast funds so you can confidently move forward with your deals or close on a new home. Life can be unpredictable, so understanding these types of options are available in a bind can be a relief for families.
The key to success when it comes to bridge loans is the right hard money lender. You will need to find a trusted, reputable group that can handle your unique situation with ease.
How to find the right hard money lender for your loan
Hard money lenders provide loans based on common sense and the merits of the deal, which is why they are the perfect lenders to provide bridge loans.
For traditional lenders, bridge loans are too high of a risk. They usually can’t approve you for a loan on a new property while you still have a mortgage on your old home. Hard money lenders aren’t phased by this.
They understand that many situations can’t provide the perfect conditions for loans that banks are interested in seeing.
Rather than strict documentation, hard money lenders want to hear about your unique situation and goals. They make decisions based on years of industry experience.
How Avantgarde Lending can help you get a loan
The best hard money lenders are focused on building trust and relationships with borrowers. Avantgarde Lending is the ethical standard for hard money lending.
This team of mortgage professionals strives to simplify the most complex scenarios.
Avantgarde Lending offers:
- No income documentation for bridge loans
- In-house underwriting, servicing, and processing
- Same-day approvals
- Closing in as fast as seven to 10 days
- Loan amounts from $50,000 to $20 million
Bridge loans can be really helpful for buyers that need to close a purchase prior to selling their departing residence. We can lend up to 70% of the combined value of any two, three, or more properties while keeping existing conventional loans in place (we can take a 1st, 2nd, or 3rd position on the departing residence while taking a 1st on the new purchase). Utilizing both properties as collateral for one loan we can give borrowers a short term loan to acquire their new residence, move in, and give them enough time to sell the departing residence.
When the departing residence sells the borrower will need to reduce the principal balance of the loan to 70% of the value of the newly acquired property for us to release the lien from the borrower’s departing residence.
After the departing residence sells and the loan balance is reduced borrowers should be in a position to get a regular bank loan to pay us off.
Submit your loan scenario today, if you need a bridge loan fast, and we will get back to you quickly. We look forward to helping you achieve the freedom and flexibility you need to fulfill your life goals.
