A bridge loan is a short-term loan which the owner of a property borrows against the equity in the property. The intention is that new real estate will be purchased. After the new real estate is purchased, the other property will be sold to pay off the bridge loan.
This is a useful financial tool or homeowners and investors that have enough equity in their property. Before applying for a bridge loan though, it’s a good idea to take a closer look at the pros and cons of this financial tool.
Pros for Bridge Loans
1) You only have to move once.
Bridge loans give you the money you need to purchase new property before your current one sells. This way, you only move one time.
2) You can access the equity in your home without selling it.
The purpose of bridge loans is to borrow against the equity in your current property. These loans are often approved and funded quickly.
3) You can present a strong purchase offer.
Bridge loans give you the ability to make a cash offer.
4) You can be approved easily.
You are not required to have a perfect credit score and high income in order to receive approval.
5) You can obtain funding on property listed for sale.
Lenders of hard money bridge loans provide short-term loans on real estate that is currently on the market.
6) You don’t have to prove income.
You are not required to prove income in order to obtain funding- but you are required to have equity in your current property.
Cons for Bridge Loans
Just like everything else, there are a few downsides:
1) You have high interest and short terms.
Typically, these loans have higher interest rates than a conventional loan. Additionally, the term is shorter, usually 12 months or less, before it must be paid off.
2) You have high transaction costs.
Typically, origination fees are in terms of points, which range from 1.5 to 3, depending on several factors. Additionally, you are required to pay standard fees such as title insurance, notary & recording fees, and escrow.
As you can see, there are several pros and cons to bridge loans. However, if you believe that this is something that could help you, please contact Lionheart Commercial Capital.