Are you looking for a new home but lack the capital to use as a down payment? Then it is time to consider bridge loans. These are short-term loans that utilize your current home’s equity as the down payment for a new home you eye in the market. Instead of waiting for months before you find a buyer to raise money from your current home, you can consider a bridge loan to buy a new home without contingency.
How a Bridge Loan Works
You should understand that bridge loans allows you to take a portion of your current home’s equity and use it to borrow money that you will then use to buy a new home. It is easier to balance selling your current home with a bridge loan while buying a new one in the process. You should, however, note that a bridge loan comes with a higher interest rate compared to other forms of loans you can get to finance your real estate project.
The concept behind bridge loans is that you take the loans in two portions. The first mortgage bridge loan allows you to pay off the balance of the mortgage with enough for the down payment for the new house. This is until when you complete the sale of your current home. The second mortgage bridge loan makes it possible to get the amount needed for a down payment on your new house. Your current home secures the loan, and it’s what makes the second mortgage.
You should also note that a bridge loan allows you to borrow up to 80% of your home’s value. This is, however, dependent on the loan and agreement terms with the lender.
When You Should Use a Bridge Loan
You can utilize bridge loans effectively in competitive and fast-moving real estate markets. This is especially in situations where sellers don’t accept contingencies. A bridge loan helps you make an offer without a contingency. You can also use a bridge loan when buying a property that is in bad shape and calls for repairs and maintenance works. You can also use these loans when flipping and fixing a home. Flips are usually short terms and make it possible to repay after the sales. Get in touch with Lionheart Commercial Capital for more information and guidance on getting and utilizing bridge loans in your real estate projects.