When buying a property, you have to explore the different mortgage options to get what is right for you. And one of those loans to consider is a bridge loan. This is a temporary loan that solves any financial challenges you may have when you want to buy a new home, but the current one is yet to sell.
How Does This Type of Loan Work?
There are two ways that most lenders will package bridge loans to meet the needs of the borrower.
Hold two loans. Here, you can borrow a second mortgage and use those funds to pay the down payment for the house you want to buy.
Combine both mortgages into one. This option allows you to take a large loan, which you can use to clear the first mortgage and use the rest as a down payment for your second home.
Most homebuyers opt for bridge loans to put in a contingent offer on their new home. This can work to your advantage in a sellers’ market where many buyers want the same house.
Pros of Bridge Loans
A bridge loan lets you put in a contingency offer on a home, which can make the seller consider your offer.
It is convenient, especially if you want to move out fast and you are in a market where homes take time to sell.
Cons
It is a bit more costly than the standard home equity loan.
The loan is short-term, which limits your repaying time.
No matter your financial position, managing two mortgages plus a bridge loan can be stressful.
Who Qualifies for A Bridge Loan?
If you are interested in buying a second home and the first home is yet to sell, you might qualify for a bridge loan. However, expect the process of getting this type of loan to be a bit different than the standard mortgage. Some of the things that a lender will look at include the credit score, credit history, loan-to-value, and debt to income ratio.
When considering bridge loans, research all about them and address any concerns you have with a lender before getting it. It will help you know what you are getting into. If you are in the market for a bridge loan, reach out to us at Jasema Capital. We can help you with the finance you need to get your second home.