A bridge loan is a temporary loan that is generally secured by someone’s personal home, and its purpose is to bridge the gap between the existing home mortgage and the price of a new home. It amounts to borrowing the down payment on a new home before the old one has been sold. It doesn’t make sense in all cases, but when it’s a good fit for your financial condition, there are some considerable benefits.
Advantages of a Bridge Loan
Once you’ve arranged a bridge loan to use in your real estate transaction, you will immediately be able to use your current home equity to purchase a new home, without having to wait for the old one to be sold. If the new home does not require monthly payments immediately, you might also gain a few months where you don’t have to pay anything. For someone who has a cash flow problem, this can be a real advantage, since you might not be obliged to make a payment until your cash flow situation clears up.
Another advantage of using a bridge loan is that you would still be able to buy a new home, even after removing any contingency to sell. If you have made a contingent offer to purchase a new home, and the seller issues a notice to perform, you can still proceed with the purchase after having removed the contingency to sell.
In many cases, lenders will have a lot more leeway in accepting a greater debt to income ratio, especially when the mortgage on the new home happens to be a conforming loan. The mortgage loan can be run through an automated underwriting program for approval. In most cases though, lenders will confine the homebuyer to a 50% debt to income ratio when the new home being purchased has a mortgage which is part of a jumbo loan.
Need a Bridge Loan for Your Company?
If you’re interested in applying for a bridge loan, we’d like to hear from you. Contact us at Alternative Capital Source, so we can discuss some financial options which you may qualify for.