Like traditional mortgages, bridge loans are commonplace in real estate transactions. This form of short-term loan can help buyers in a variety of situations, including covering a down payment or using it as a second mortgage.
Here is some important information to know about bridge loans:
What is a bridge loan?
A bridge loan is a type of short-term financing to help cover any gaps in funding. Topically lasting from 6 months to one year, they're common in real estate situations. Bridge loans are also known as bridge financing, interim financing, gap financing or swing loans.
How does a bridge loan work?
Bridge loans are similar to traditional bank loans, except they’re assessed by several factors, such as credit scores and debt-to-income ratios. These loans generally use the borrower's current home as collateral, and vary in terms of interest rates. Some offer monthly payments, whereas others demand upfront or long term lump-sum interest payments.
Pros & cons of bridge loans
There are some major benefits to this form of financing, depending on your situation. One of the greatest advantages of a bridge loan is the flexibility to make an offer on a new home without selling your current home.
However, bridge loans typically have higher interest rates and APR than other forms of financing. Some lenders also require you to take out a new mortgage with them before they'll offer a bridge loan for the interim.
Types of bridge loans
Although bridge loans are not usually classified in specific kinds, they are usually varied based on interest rate, repayment method and repayment terms. Bridge loan interest payments may also be handled in various ways. Some lenders require borrowers to pay monthly, while others prefer a payment for interest that is paid in installments at the end of the loan.
Should you use a bridge loan? Depending on your financial situation, it might be an excellent option for funding your homebuying process. Keep these key factors in mind and consult a lender to find out more information.
About the Author
Kimberly Hering
Kimberly Hering's devotion to helping people achieve their real estate goals stems from her genuine enjoyment of the process. Whatever the task, Kimberly makes it her mission to get it done, however she can, without compromising her client's needs. Often, that means thinking outside the box. After working with Kimberly, clients describe her as being Trustworthy, Creative, Patient, Highly Skilled, Attentive to the Process and having a lot of Integrity.
After spending more than 15 successful years working on Wall Street, Kimberly transitioned into Real Estate, joining Alain Pinel Realtors, then moving to Zephyr, now Corcoran Global Living, in 2018. During her career on Wall Street, Kimberly was a Vice President working as an Institutional Equity Salesperson for Montgomery Securities for 10 years. She covered the top money managers throughout the US and Canada. She joined Jefferies & Co as a Senior Vice President managing the Western Region Institutional Sales group, while continuing to cover the top money managers.
Kimberly leverages her extensive experience selling equities to top money managers throughout the US and Canada, to successfully negotiating any Real Estate transaction seamlessly for her clients. Kimberly is well versed in Marin's neighborhoods, towns, cities, and education system.
Living in the Bay Area for 35 years, 25 years in Marin and having 2 sons in local Marin schools, Kimberly spends a lot of time volunteering in the community and serving on various local Boards. Kimberly has a collection of resources ranging from the best local breakfast spots to vetted contractors. With her reliable list of valuable resources, Real Estate experience and unsurpassed knowledge of Marin's many communities, Kimberly can guide her clients through every aspect of a Real Estate transaction seamlessly.
Relocating to Marin, downsizing, upsizing, first time home buying, final home purchase or sale, or a lot to build a dream home, no matter the undertaking, Kimberly works seamlessly until the job at hand is completed with 100% satisfaction.