3 Reasons A Bridge Loan May Be Right For You
A bridge loan is designed to be a shorter-term loan that provides you with the money to make up the difference between the sale price of the home and your mortgage when you have a property up for sale that hasn't sold yet. It essentially gives you a loan on the equity you have in your home while you are waiting for it to sell.
1. Length of a Bridge Loans
Bridge loans are designed to be a short-term deal, allowing you to access the equity in your home before it sells and use that equity to purchase a new property or make a down payment on a new property. The terms are often shorter than a year with a typical bridge loan.
However, you can work with the lender and take on an additional fee to get longer terms on the loan with a long-term bridge loan. This is helpful if you discover that you need to fix up your property a bit more before selling it or if you want to remodel it before selling to increase the value of the property further. It is also helpful if the market is slow and your property takes longer than anticipated to sell.
2. Flexible Repayment Options
One of the benefits of a bridge loan is that it generally comes with flexible repayment terms. With this type of loan, you are generally given a couple of months before you have to make any payments on the loan. So, if you get the bridge loan and sell your property within a few months, you may only ever make one payment when you pay the loan off.
If you are going for a long-term bridge loan so you can fix up the property, not having to pay the loan for a few months can give you some additional breathing room in your budget.
Additionally, when it comes to paying off the loan, there are generally no early repayment penalties that you will face either. So, if you took out a bridge loan for a year and you sold your property within nine months, you can pay off the bridge loan without tacking on extra charges for paying it off early and saving on a few months' interest as well.
3. Less Documentation
Another advantage of a bridge loan is that it doesn't require as much documentation as a traditional loan does. The property secures the loan, and your personal finances will not be reviewed as closely as they would be for a mortgage or other type of more conventional loan. Less documentation means less hassle on your part, and it also means that the loan should close at a faster rate.
A bridge loan can allow you to tap into the equity in your building before you actually sell it, allowing you to use the money to improve the property or put a down payment on another property that you already found. The repayment period isn't long, and you will not incur penalties for paying the loan off early. The documentation process is simple, allowing you quick access to the funds.