People get loans for various reasons. If they are purchasing a new home or buying an automobile, loans provide consumers with the immediate funds they need to move forward with their purchase. One such loan is a bridge loan. This loan option offers immediate cash flow to the borrower for a shorter period, usually during a transition.
Bridge loans have a primary use in real estate transactions. Homeowners can use bridge loans in a variety of ways for home financing. However, just like any loan, a good understanding of the loan process is essential.
What Is a Bridge Loan?
A bridge loan is a short-term financing loan. It provides the borrower with a temporary cash flow while they secure permanent financing or pay an existing financial obligation.
Another popular reference that someone may use is swing loans. They can finance the purchase of a new home before selling your existing house. You’ll have some flexibility in bridge financing.
Typically, bridge loans are short-term loans, lasting only about six months to one year. Since the loan term is so short, it has relatively high-interest rates. Bridge loans require some collateral. You can check with a loan advisor for details.
When You Need a Bridge Loan
People secure a bridge loan for various reasons. Some homeowners may be ready to move, but their home is still on sale. As a result, they need quick money to secure the new home, where the bridge loan comes into play as a home equity line. Borrowers can use the equity in their current home as a down payment on a new home purchase while they wait for their current home to sell.
Another reason to secure a bridge loan typically is to fund a real estate investment. Maybe the person isn’t buying a home for themselves but purchasing one to rent out.
What Are the Benefits of Bridge Loans?
Some of the benefits of bridge loan financing include the following:
Quick Funding with Bridge Loans
When expedited approval and funds are necessary, you can count on a bridge loan to help you manage the process. This prevents you from missing out on meaningful opportunities.
Flexibility in Real Estate Transactions
Sometimes, you must act fast when looking for a new home. When you have a bridge loan, you can make competitive offers and buy time while you wait for your current property to sell.
Improved Creditworthiness
You won’t take a hit on your credit but will retain a strong history and score. A bridge loan enables you to continue to meet your financial obligations, thus maintaining your creditworthiness.
Costs and Risks
Since a bridge loan is short-term, the interest rate will be higher than average. This is one of the cost factors that borrowers must consider. There may also be transaction fees.
On another note, if the bridge loan borrower doesn’t sell their assets immediately or within the loan period, that can lead to uncertainty.
How to Qualify for a Bridge Loan
In most cases, you will need an excellent credit score to secure a real estate bridge loan. Additionally, a low debt-to-income (DTI) ratio is valuable.
Get More Information About Bridge Loans
Make an informed decision when considering a bridge loan. Contact Amerant Bank to speak with a representative about applying for this loan or learn about our other commercial loans. Learn more at amerantbank.com and follow Amerant on Facebook, Twitter, Instagram, and LinkedIn @AmerantBank.
