What Are Residential Bridge Loans?

Bridge loans have become quite popular. These are the types of loans that you may wish to look into when you are buying another home before selling your existing home. In other words they "carry you over" until you sell your existing home. There are quite a few benefits to doing this, which is why many choose this option over a home equity loan. What are bridge loans?Bridge loans are loans that are temporary and they bridge the gap between the actual sales price of a new home and the new mortgage when the home buyer hasn't sold their existing home yet. The existing home is what secures the bridge loan and the funds can then be used as a down payment on the new home. As for how bridge loans work, there are guidelines set by the lenders. For instance, there are certain credit score requirements. There are also debt-to-income ratio requirements. The lending institution will set the guidelines, so you may wish to shop around for the best deal you can possibly find. Most lenders when determining whether or not an individual qualifies for a bridge loan will not include the bridge loan payment when determining debt-to-income ratio. In many cases, all loans, even potential ones, are included in the debt-to-income calculation. This is quite beneficial and is done so because the loan is temporary. They do this because:- The borrower already has an existing payment on their current home- It is quite likely that they borrower will close on their new home before they sell their existing home- The borrower will only own two homes for a short period of timeThe feesThere are also fees that are associated with bridge loans. Those fees are going to vary based on the lender that you choose. Even if your bridge loan does not require any payments for the first four months, interest does accumulate and will be due at the time the existing home is sold. Here is an idea of how much the fees to have a bridge loan may cost:- Appraisal fee - $375- Administration fee - $750- Title policy - $350 or more- Escrow - $350- Recording fee - $65- Notary fee - $40- Drawing fee - $75There may also be a loan origination fee. This fee is based on the amount of the loan. AdvantagesWith the bridge loan, the buyer is able to put their existing home on the market immediately without having any restrictions. There may also be no monthly payments required for the first few months. However, it is important to note that bridge loans do cost more than home equity loans, but at the same time the buyer doesn't have to worry about selling their existing home for more if they would have to by borrowing from the equity. This opens up a doorway to home buyers to be able to make a move before they normally would. Most people wait until they sell their home to buy a new home, but through this they are able to move through the process quicker.

What Are Residential Bridge Loans?

By: Gen Wright

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