| Let's say you have decided to move to a new | | | | require cross-collateralization and a |
| neighborhood. You have placed your current | | | | decreased loan-to-value. |
| home in the market and presently in the final | | | | |
| stages of closing the sale with a buyer. You | | | | Based on appraised value, LTV ratios |
| intend to use the proceeds of this sale to | | | | generally do not go beyond 65% for commercial |
| purchase your new home. | | | | properties and not more than 80% for |
| | | | residential properties. On the upside, |
| Then, an irresistible offer presents itself. | | | | however, there is the undeniable factor of |
| You've found your dream home in the new | | | | speedy processing and lowered documentation |
| location. Unfortunately, the property is hot | | | | requirements. |
| in the market and if you do not settle down | | | | |
| payments now, you run the big risk of losing | | | | Where can you avail of bridge loans? |
| the bid. Your income from your home sale is | | | | Unfortunately, not from a bank. From the |
| still due to close by the end of the month. | | | | point of view of a banking institution, risks |
| What do you do? | | | | are too great for this type of loan and may |
| | | | encounter complication in dealing with their |
| Apply for a Bridge Loan. | | | | investors and legal advisers as well. |
| | | | Investment pools, individuals and companies |
| A bridge loan is a short-term financing | | | | who specialize in high-interest loans are |
| option while waiting for the realization of a | | | | source options for bridge loans. |
| more permanent or next stage financing can be | | | | |
| achieved. Bridge loans are usually repaid | | | | Let's go back to our example above. When |
| through conventional financing once the | | | | buying a home through the benefits of bridge |
| latter is approved and released. Meaning, | | | | loans, there are some pros and cons that need |
| the amount borrowed conventionally covers | | | | to be considered. Through bridge loans, the |
| both the bridge loan amount and the | | | | home-buyer can place a home in the market |
| originally required capital. | | | | right away without limitations. |
| | | | |
| Just like in the above example, individuals | | | | Since bridge loans may not necessitate |
| or businesses turn to bridge loans in | | | | monthly payments during the initial months |
| situations such as saving a property from | | | | within the term, the home-buyer's cash |
| foreclosure, taking advantage of a special | | | | requirement is eased to focus on the real |
| limited-time offer or closing a property deal | | | | estate transaction at hand. |
| in the shortest possible time. | | | | |
| | | | On the negative, however, is the element of |
| Because of its convenient nature, bridge | | | | higher cost, plus the standard requirement of |
| loans are naturally more expensive than | | | | the bridge loan lender that the buyer must |
| traditional financing. Not only does it | | | | possess two homes to qualify. Assuming this |
| require higher interest rates (about 12-15%), | | | | requirement is met, it is needless to say |
| points (2-4 points) and other miscellaneous | | | | that mortgage payments for two homes, coupled |
| costs (administration fees, appraisal fees, | | | | with the accrued interest on bridge loans |
| escrow, title policy, notary fee, recording | | | | will be highly stressful. So, think before |
| fee, wire / courier / drawing fee, loan | | | | you leap. |
| origination fee, to name a few), it may also | | | | |