A bridge mortgage gives you the cash you need for the down payment you’d normally get from your existing property equity. Give yourself some negotiating power by obtaining short term, emergency financing for a bridge mortgage from an unexpected source. Many sellers like to view someone with good funding ready to close a deal. If you find yourself suddenly needing a few thousand dollars for something such as a house repair or remodeling, a bridge loan might be just what you need. You’ll never have to pay this money back.
When you refinance your current home, you usually have several months to shop around and compare offers before making a choice. Many homeowners do not bother to put a lot of thought into their decision, simply choosing the lowest financing terms possible. Once they make their final decision, they are stuck with whatever financing terms they agreed to. The last thing any homeowner wants is to start out life in a financial crisis because they went with the wrong decision. So before you head into a lender’s office to apply for a bridge mortgage, ask yourself if this is the right option for you. Only refinance your current home if you have the cash and the financial resources to handle the payments for the new one.
Many homeowners prefer a bridge mortgage over a conventional refinance because of the potential savings. This type of loan allows you to finance your remodeling costs at a lower interest rate than your own interest rate might be on your own home equity loan. A drawback, of course, is that if you eventually sell your home, you will lose your initial capital investment – your bridge financing. But it may be worthwhile if you need the money and have no use for the lump sum you will receive as a payoff for the new loan.
In addition, if you plan to stay in your present home until a later time, you will be required to pay property taxes and insurance on the amount of time you are allowed to stay. This is not the case if you are purchasing a new property. The purpose of the bridge mortgage is to protect your equity. If you should need to make repairs to your home before you sell it or move, you will be able to deduct the cost of the repairs from the proceeds of your loan. Although most lenders require that borrowers pay closing costs at closing, some allow you to deduct them from your gross proceeds – the amount of cash you receive from selling your home – after the loan has been paid off.
As mentioned earlier, the timing for obtaining a bridge loan is based on the real estate markets at the time. If they are depressed, borrowers might need to obtain a loan early to secure themselves against a rising market. On the other hand, if the real estate markets are bullish, borrowers might need to wait a longer period of time before obtaining a bridge mortgage to secure themselves against a falling market. This is because most people who are in distress have already made several bad payments and do not stand a chance of being able to refinance their current loans into even lower rates.
If you are considering applying for a bridge mortgage, you need to determine whether your lender will approve you based on your credit score, income and employment history, as well as any other financial considerations. You also need to find out what type of documentation your lender requires. Many lenders only approve bridge financing to borrowers who already have an existing loan with them. If this is the case, you need to get hold of your lender immediately to see whether they can still approve you based on your current loan. It is often a waiting game until the lender actually sees a default on your current loan and decides whether to continue your financing or not.
You need to shop around for the best interest rates when obtaining a bridge mortgage from a specific lender. This is because the interest rates that are offered to you when you apply typically have very little to do with what the lender will charge you when the loan matures. Instead, it is more important to focus on the term of the loan, the monthly payments, and the interest rates. The longer the term of the loan, the less you will have to pay back to your lender at the end of the term.
When shopping around for the lowest interest rates, make sure to look at multiple lenders to ensure that you are getting the lowest possible rate. There are literally hundreds of lending companies out there who offer bridge financing options. However, many of these lenders will offer significantly higher interest rates. This means that if you do your homework you can get a great deal from one of the different lenders. The key is to know that the interest rates will most likely be higher when you apply with a new lender.