In case you are moving to a new home in the near future and need some extra cash on hand to help you out in transition, Bride Loans can help you out. Bridge Loans, as the name suggests, are there to ‘bridge’ the short-term financing needs of the individual between buying and selling their home at the same time.
The mechanism behind a Bridge Loan
There are two different ways a Bridge Loan is packaged. So, before you take advantage of the bridging loan calculator here, first, you need to understand these two types of packages.
- Holding two loans: This package is relatively straightforward. The lender would allow you to loan the balance between the current loan balance and 80 percent of the new home’s value. This is a second mortgage you take on your house, where these funds are applied as the down payment of your new home. The first mortgage is naturally kept intact until the deal for the sale of your home is complete. Simply put, you are holding two loans at the same time.
- Combining both mortgages into one: Another way that lenders package this deal is by simply combing both of your mortgages into one. In this scheme, you would be allowed to take out a loan (up to 80 percent of your current home’s existing value), pay off the first mortgage, and then use the second toward the down payment for the new home.
As one can quickly gather from both of these packages is that Bridge Loan is simply there for one to purchase a new home while they are in the process of selling their existing home. For folks entertaining more than one offer for their current home, this loan can be exceptionally beneficial as they can take their time and get the best deal for them.
How can one get a Bridge Loan to buy a new house?
That is the point of getting a Bridge Loan, isn’t it? To be able to close the deal on your new property while you are still in the process of selling your existing one. Getting a Bridge Loan is quite easy. Often the lender would look at your existing property value, Debt-to-income ratio, credit score, household incomes, and other standards metrics to help determine whether you are a default risk or not. In case you have been good with the mortgage with your current home, your application would be fast-tracked for speedy approval. It is as simple as that.
How much can one borrow as a Bridge Loan?
The amount one can borrow as a bridge depends on the lender in question. Different lenders use different metrics for calculating and determining the upper ceiling for one when it comes to borrowing under Bridge Loan. But typically, the upper ceiling is set at the 80 percent value. Yes, there are lenders that might go up to 85 percent, but in rare cases. You would find 80 percent to be the standard benchmark on the market.
Pros and Cons of Bridge Loan
Pros
- A hugely beneficial loan for folks that do not want to lose a deal just because the sale of their current house has not yet been finalized
- Beneficial in the seller market as it takes away any kind of final contingencies from the offer. It naturally is desirable to the seller as they can be sure of the clearance of the deal without any hiccups.
- One can avoid any kind of private mortgage insurance by using the Bridge Loan amount as the down payment.
- Fast approval for this type of loan
Cons
- A higher rate of interest than the other loans on the market
- A short loan period: most Bridge Loans are offered from 6 months to 1 year, resulting in higher monthly payments
- The borrower has to pay two mortgage fees
- While Bridge Loans are quite easy to get, one might face some challenges if they do not have healthy financials to back them up.
- In the end, the borrower is paying more out of pocket due to the added interests and other charges.
So, yes, while Bridge Loans can be hugely beneficial, there are some cons that one needs to be aware of as well.
