Bridge loan - A short-term loan, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale.
Bridge loans have lost their popularity in recent years because there are more second mortgage lenders, that will loan more money on your equity value. Plus most sellers would prefer to accept offers from people that already sold their property.
Bridge Mortgages are used to buy a new home before the current residence is sold. There are risks associated with Bridge Loans. In a slow real estate market, after purchasing his new residence, a borrower may not be able to sell his old property within the time frame as he anticipates, or the sale of his old home may fall apart. If any of these situations should arise, the borrower would have two mortgage payments for longer than he expects, one on the new home and the other on the Bridge Mortgage, which may prove to be disastrous to his financial health.
Without having a specific buyer in mind for you current residence a bridge loan could end up burying you financially.
As in all loan scenarios, when looking a bridge loans, caution needs to be used to determine whether or not this the right situation for you. If you are working with a professional Mortgage Broker they can help show you the upside and downside so you can make an informed decision.
You may be able to pay interest only on the bridge loan and in some cases you may defer all payments until the home is sold allowing you a more comfortable payment.
Bridge loans are also popular for new construction projects as well. This allows the client to put a down payment and get construction started.
A Bridge Loan is a loan that is used for a short duration of time until permanent financing is put in place. They are the perfect solution to timely real estate transactions because they allow a purchaser or investor to act quickly.
Some borrowers use a bridge loan because they find the "perfect" house and want to purchase it immediately. But their current home is still not sold yet. The bridge loan will provide financing to you based on the equity in the future sale of your current home.
Also known as a Swing Loan, Bridge Loan can be used in Residential and Commercial Properties.