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