Are you considering applying for a bridge loan? Find out what you need to do in preparation for your bridge loan application.
A bridge loan is a short-term loan that is designed to bridge the gap between more permanent forms of financing. Bridge loans are generally for people who are not certain of an immediate source of income to fund something that is somewhat urgent. One of the cases wherein bridge loans are used is for real estate. For instance, you have found a new home to reside in and you need the money to fund it but you still haven’t sold your old house. This type of case is where bridge loans are best done. Bridge loans are both simple and economical as it allows you to use your existing home’s equity while you are waiting for a buyer.
Learn how to apply for bridge loans by reading and following these simple steps:
- Consult your mortgage lender and ask if you can qualify for a bridge loan. Not all cases are approved by banks which offer bridge loans. Because of this, it is best to ask if it is actually feasible before proceeding with the purchase of a new home.
Although banks offering bridge loans are known to be risk-takers, they still operate under a certain criteria. For example, you are a newly terminated employee who wants to get a loan but is not sure of immediate income to pay the debt with, you may not be granted the loan. Of course, this depends on the bank. As such, it is best to consult them about these matters.
- Like any other product or service, it is better if you first get to know your options. Shop and look around to see if you can get the best deal with the rates and terms. Keep in mind, however, that bridge financing is short-term and therefore yields high amounts of regular payments.
- It is recommended that you apply for the bridge loan simultaneously with applying for your primary mortgage loan for your new home. Bundling the two loans and borrowing them from the same lender may save you money on closing the deal
- Plan and choose the terms of your bridge loan wisely. Make sure that you can cope with the regular payments because interest rates are high in bridge loans. Give an allowance to the duration of the selling period of the house. Do not assume it will sell in just 3 or 4 months as it may take longer.
- Work towards paying your bridge loan in full. When your home is sold, the proceeds of the sale should go to paying mortgages or paying the bridge loan.