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Bridge Loans

Bridge loans are becoming more common for homeowners who would like to move up to a more desirable home but who have not yet sold there current one. Bridge loans close the gap between the time that the old home is sold and the new home is purchased. In essence the borrower often becomes the owner of both homes at the same time. The interest rates on bridge loans are unusually high. This of course can leave the homeowner in a vulnerable position especially at a time of generally declining home values.

Bridge Loans Do Not Require Excellent Credit

Even if the homeowners credit is only average, homeowners can still qualify for a bridge loan because qualification is almost completely based on the value of the real estate collateral rather on the persons past credit performance.

It is important for homeowners not to over extend themselves in a down and uncertain real estate market. Homeowners often run the risk of finding themselves having to make payments they cannot realistically afford, which is why so many real estate professionals do not favor bridge loans for their clients. Those that do, may be more interested in making the sale then making sure their client’s best interests are served.

A bridge loan is typically good for up to six months, but can often be extended to twelve months. The customary interest charged when using a bridge loan is going to be at least two or three percentage points above most other fixed-rate home loan products. Bridge loans promise the homeowner a steady cash flow so that they can keep meeting their current financial obligations while they are waiting for the properties to close.

Consider Other Sources For Your Bridge Loan

2009/2010 mortgage data are showing that most home lending institutions will only accept secured collateral for purposes of bridge lending. While bridge loans may seem like a good idea, you should know that it is usually less expensive if you borrow against a retirement account. Many retirement accounts provisionally provide for short-term borrowing needs without the individual homeowner incurring a penalty.

For those homeowners whom do not wish to use retirement money, lenders will also accept secured collateral in the form of cash value insurance policies and established stocks and bonds.

If possible, try to work a deal with a friend or family member. You will find friends and family are usually willing to extend short-term loans under much better terms then banks. It is recommended that you use an independent attorney to draft the loan terms and promissory note when dealing with friends and family.

Bridge Loan Considerations – Get Secured Before You Purchase

Most financial advisors will tell you that you should not put your house up for sale unless you have full knowledge of the home prices in the residential areas in which you intend to buy or sell your home. This is absolutely correct. There is nothing more important in securing a bridge loan then being educated on the market conditions that are relevant to your real estate transaction.