Bridge financing, also known as bridge loans or bridge funding, is a short-term mortgage financing option used to provide immediate cash or bridge a financial gap between two transactions. It serves as temporary financing until a more permanent solution can be arranged.
Bridge financing is commonly used in real estate transactions where quick access to capital is needed. Here are a few key points to understand about bridge financing:
- Purpose: The primary purpose of bridge financing is to provide short-term funds to cover immediate financial needs. In residential real estate, it can be used to bridge the gap between buying a new property before selling an existing property
- Duration: Bridge loans are typically short-term loans, ranging from a few weeks to 2 years. The specific duration depends on the terms negotiated between the borrower and the lender
- Higher Interest Rates: Bridge loans generally have higher interest rates compared to traditional loans. This higher interest rate is normal, as the loan is expected to be paid off sooner rather than later. In addition, the financing is typically interest only, which means that the proposed mortgage payment for the bridge loan is usually lower than expected
- Collateral: Bridge loans are collateralized as a lien against the current property owned
- Speed and Flexibility: Bridge financing offers quick access to capital, often with a simplified application and approval process compared to traditional loans. It is designed to be a flexible solution that can be customized to meet specific financial needs
- Exit Strategy: Bridge loans typically require a clear exit strategy, outlining how the borrower plans to repay the loan. This strategy may involve selling a property or securing long-term financing
Main Benefits
Obtaining a bridge loan offers a lot of benefits to the right homebuyer. In a hot real estate market it can be much easier to get an offer accepted using a bridge loan rather than being forced to write an offer contingent on the sale of the current residence first.
Reasons to use a Bridge loan:
- You want to buy a home quickly & don’t have time to sell your current home
- You’re relocating & don’t want to rent
If you have questions about a bridge loan or want to find out if it is the right option for you, give us a call at 760-930-0569 and one of our Mortgage Loan Originators will be happy to answer any questions you may have.
