The United States boasts the second-biggest real estate market after China, valued at about $156.2 billion as of 2021. Most folks would love to get their foot into the real estate game but are financially incapable of doing so. Fortunately, there are many types of real estate loans you can opt for to give you that financial push.
If you’re a real estate investor looking for funding, maybe you should consider a real estate bridge loan? Wait, what’s a real estate bridge loan? We’re glad you asked.
Join us today as we look into everything you need to know about real estate bridge loans.
Real Estate Bridge Loan: The Definition
We all know bridges connect one point to another, so what does a bridge have to do with financing. Well, a bridge loan doesn’t connect two physical locations but instead connects two transactions.
A real estate bridge loan is a type of short-term financing, typically by private lenders, that offers quick funding for house buyers. You can borrow a real estate bridge loan to meet transactional needs when purchasing a property. These loans are secured, meaning you have to offer collateral, usually your home, before you can qualify for the loan.
Bridge loans are great for investors looking to buy then flip homes for a profit. They can get the funding to purchase the home, flip it over for a profit, repay the loan and take the profit home.
Bridge loans are easier to qualify and don’t require a minimum credit score or income ratio. They are secured against your private property, which is probably on the market already.
Why Are Bridge Loans Common in Real Estate?
Apart from house-flipping, bridge loans also play a crucial role in the real estate market. Let’s say you’re looking to buy a new home, but before you can afford your dream home, you need to sell your current one. You have the perfect home in mind, but the seller isn’t willing to wait for you to sell yours so you can buy the home.
A bridge loan provides the funding to purchase the home in question before selling your current home. It bridges the period between selling your home and purchasing your dream home. You can repay your financier once you find a buyer for the home you’re selling.
Because you secure the bridge loan against your home, you don’t have to worry too much about repayment. That’s because the financier will take possession of the house you’re selling should you fail to repay the loan. In the end, everybody wins.
Advantage of Real Estate Bridge Loans
Real estate bridge loans have thrown many real estate agents and investors a lifeline and enabled many people to purchase their dream homes. Here are a few advantages of real estate bridge loans.
No Monthly Repayments
Unlike other types of loans, bridge funding doesn’t require any monthly payments. Most lenders only ask for a one-time payment after you’ve sold the asset. This gives you peace of mind to achieve your financial obligations first before paying off the loan.
If you don’t want to bear the financial burden of monthly repayments, then a bridge loan is the way to go. However, make sure you find a reputable lender for your bridge loans for the best results. Keep in mind; some lenders may ask for monthly payments, though quite rare.
It’s a Short-Term Loan
A bridge loan is a short-term loan that spans less than a year. As soon as you sell your home, you can repay the loan and leave it in the past.
This is way better than other real estate loans that haunt you for years on end. What’s more, some lenders can process the loan within three to five business days.
No Credit Check Required
As mentioned above, you don’t require a good credit score or income ratio to qualify for a bridge loan. That’s because bridge loans are asset-based financing secured to collateral. Even if you have issues with foreclosures, bad credit, and bankruptcies, you can still qualify for a bridge loan.
Bridge loan lenders are an excellent alternative to banks and traditional financial institutions that require stellar credit before loan approval. If banks can’t come to your aid, at least you have a fallback option with bridge loans.
Gain Equity Before Sealing the Deal
A real estate bridge loan gives you access to instant equity by allowing you to borrow against the property you wish to sell. You can use the money to beat other potential buyers to the property. This loan gives you the purchasing power to buy your dream house, provided you have enough equity.
Gives You a Stronger Purchasing Capability
House sellers will usually hold out for the buyer with the best offer. This can be a huge bummer if you need to sell your house first before you can afford the home in question. Most sellers aren’t willing to accept that type of risk and jump on the best offer that comes their way.
Thankfully, a bridge loan gives you the funding to purchase the home without selling your house first. It increases your purchasing capability, so you don’t miss out on rare chances to own your dream home.
You Won’t Have To Move Twice
Let’s say you need to sell your house so you can purchase another one. You’ll have to move out temporarily to sell the house and then move into your new house once you purchase it. If you borrow a bridge loan, you only have to move once because you will have enough to move into the new house without selling your current house.
Bridge Loans Always Work for the Best
A real estate bridge loan is an excellent option for anyone in need of quick funding against their current home. They can give you the funding to purchase that new house or help facilitate your house flipping venture
For more informative reads, check out the other articles on the site.
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