Bridge Home Loan Mortgages
There are some real estate situations where you might consider getting a bridge loan. Let's take a look at an example. Let's say you've been thinking about selling your home.
However, you haven't yet actually started the process. Somewhere along the way, you discover the perfect home and are determined to own it. The problem is that you still live in your current home and would need to sell it before you could afford to buy a new home.
This is where a bridge loan comes in. A bridge loan is a short-term, high interest loan that can provide you with the funds to buy a new home before you sell your old one.
There are pros and cons to this type of loan. First, the advantages. If you've got less than perfect credit, you may still qualify for a bridge loan because qualification is usually based on your real estate rather than your personal credit report. Another reason a bridge loan may be awarded to someone with bad credit is because the rates are high. This is an advantage for the lender and a disadvantage for the buyer.
Other disadvantages include the risk the borrower takes when obtaining a bridge loan. Until their first home is sold, they will be saddled with three monthly payments. This is not that big of a deal if the first home sells right away. But what if it doesn't?
Homeowners can find themselves stuck with payments they cannot afford. This is why so many advisors do not recommend bridge loans. Also as mentioned before, the rates are high and the term is short. This is not always the best situation for a borrower.
So in review, it is probably best to avoid a bridge loan if at all possible. Of course, there are times when you may not be able to do this. For example, if you are relocating in a hurry or have just happened to stumble across your dream home at a great price, waiting to sell your home may not be the best course of action.
Because a bridge loan has both good and bad qualities, it is best to evaluate your personal and financial situation at length before making a decision.