What Are Bridge Loans & How Do They Work?
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If you already own a home but are planning to move, you may be in a situation where you have to sell the old property to close the deal on the new one. You may find yourself in a bind if you want to close on the new property, but are waiting on the sale of your home to make a down payment.
If you’re in Utah, getting a bridge loan through American Loans and Mortgages could be the solution you need to make the transition successfully.
What Is A Bridge Loan?
A bridge loan is a short-term loan that allows homeowners to get a loan against the equity of their existing home. The proceeds of the loan will then go to the down payment of the new home.
The term of most bridge loans is one year or less, but some loans could last as long as three years.
How Bridge Lending Works
Bridge loans allow homeowners in a bind to make competitive offers while waiting on the sale of their current home. These loans can be structured in different ways — some lenders require full payment of the first mortgage at the bridge loan’s closing, while others allow you to accrue more debt. Interest payments may be made monthly or as lump sum.
When To Use A Bridge Loan
When a lender extends a bridge loan, and it happens to be the most practical option, you can resort to getting a loan against the equity of your current home. Aside from placing a competitive offer on a property, you can use bridge loans to fund repairs and renovations on your old property, so it sells higher.
Pros & Cons
Fast processing, approval, and funding make bridge loans convenient when you have to make a competitive offer on a new property. Unfortunately, most lenders will agree to bridge loans only when you’re financing the new home purchase in the same facility.
Bridge loans carry higher risk, so interest rates are often higher. In case of default, the lender can foreclose on the old property.
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Navigating mortgage loans and connecting with bridge loan providers in Utah can be challenging for you but not for American Loans and Mortgages. We can tap our network of lenders to help you finance your home comfortably and guide you through each step.