A bridge loan is basically a short term loan that a homeowner can use to “bridge the gap” between two transactions… typically the buying of one house and the selling of another.
Bridge loans are temporary in nature… usually with maximum terms of 6 to 12 months.
Bridge loans are typically more expensive than conventional financing, with interest rates roughly 2% higher than the average fixed rate mortgages. They can also include other costs or fees determined by the lender. Lenders usually make bridge loans with the assumption that they will also be providing the long-term mortgage on the new home.
So… what are the benefits of a bridge loan? Well, for the most part, a bridge loan enables the buyer to make an offer on a new home without their offer being subject to the sale of their existing home.
Bridge loans give homeowners more flexibility. They pave the way to get into a new home without having to generate substantial cash for down payments from a 401k, stocks, or other assets.
