A short-term loan, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale.
Bridge Mortgages are used to buy a new home before the current residence is sold. There are risks associated with Bridge Loans. In a slow real estate market, after purchasing his new residence, a borrower may not be able to sell his old property within the time frame as he anticipates, or the sale of his old home may fall apart. If any of these situations should arise, the borrower would have two mortgage payments for longer than he expects, one on the new home and the other on the Bridge Mortgage, which may prove to be disastrous to his financial health.
Bridge loans have lost their popularity in recent years because there are more second mortgage lenders, that will loan more money on your equity value. Plus most sellers would prefer to accept offers from people that already sold their property.
Bridge loan programs bear more similarity to "hard money" or "private money" type loan programs than they do to conventional second mortgages or home equity loan / home equity line of credit (HELOC) products
A less costly alternative to borrowing using bridge loan is to use a home equity loan instead. HELOC's as they are commonly called are much cheaper and are open end loans that recast everytime a principle payment is made.
ONe rule you should heed if you're thinking of taking using a Home Equity loan rather that a Bridge loan is this: apply for your home equity loan BEFORE you put your house on the market. Lenders won't let you take out a home equity loan if your property is listed on the MLS (Multiple Listing Service). There maybe some banks that will grant you a home equity loan after your house is listed, but they are few and far between.
Bridge loans are often used for real estate purchases, to quickly close on a property and to take advantage of a short-term financing opportunity in order to secure long term financing.
Without having a specific buyer in mind for you current residence a bridge loan could end up burying you financially.
As in all loan scenarios, when looking a bridge loans, caution needs to be used to determine whether or not this the right situation for you. If you are working with a professional Mortgage Broker they can help show you the upside and downside so you can make an informed decision.
You may be able to pay interest only on the bridge loan and in some cases you may defer all payments until the home is sold allowing you a more comfortable payment.
Bridge loans are also popular for new construction projects as well. This allows the client to put a down payment and get construction started.
The bridge loan is based more on the value of the property than the credit background of the borrower.
A Bridge Loan is a loan that is used for a short duration of time until permanent financing is put in place. They are the perfect solution to timely real estate transactions because they allow a purchaser or investor to act quickly.
Some borrowers use a bridge loan because they find the "perfect" house and want to purchase it immediately. But their current home is still not sold yet. The bridge loan will provide financing to you based on the equity in the future sale of your current home.
Also known as a Swing Loan, Bridge Loan can be used in Residential and Commercial Properties.