Pros and Cons Of Bridge Loans
Pros:
- You can tap into equity when your property is still for sale. This will enable you to buy a new home while your old one is still for sale.
- They allow you to move when your existing property is in the selling process rather than having to be stuck finding a temporary place to live while waiting for the sale to go through.
- You can use bridge loans as a second mortgage to buy your new property by borrowing equity that you have on your current home.
- You don’t have to wait to sell your existing property in order to buy a new one. Your offer will be more competitive in tight housing markets as well.
- You can make interest-only payments until your house is sold. Many bridge loan lenders offer programs that are interest-only, which means only the interest charges are what you pay each month. Though the interest rate may be a little higher, it will soften the financial impact of having two monthly mortgage payments.
- You might be able to pay your entire mortgage with a bridge loan and get extra cash! Your extra cash can be used as a larger down payment on your new property.
Cons:
- You need substantial equity in order to qualify. If you don’t have a solid chunk of equity in your real estate, bridge loans are simply not a viable option.
- You’ll be making 2-3 mortgage payments. When you borrow against your equity then proceed to buy a new home, you’ll potentially be carrying around 2-3 mortgage payments, which can easily become overbearing.
- Interest rates and closing costs are higher. When it comes to short-term lending options, bridge loans will have higher closing costs and interest rates because you are borrowing for a short amount of time – bridge loan lenders have to make their money too.
- They aren’t as regulated as traditional mortgages meaning you’ll have less protection. Regulatory reform rules don’t apply to temporary bridge loans, which have terms of only 12 months or less.
Requirements To Qualify For A Bridge Loan
Bridge loans are not approved in the same ways that regular mortgages are. Bridge loan lenders require you to jump through a few different hoops in order to meet requirements – fees and rates also depend on your property type. First things first, be sure you have enough money to cover 2-3 mortgage payments.
Private investors usually set their own bridge loan lending guidelines, and many won’t count your current mortgage against you. This is because they are lending you the money, knowing you will be paying it off quickly. Some bridge loan lenders may require you to qualify with both loans, which means you won’t be able to tap into your full equity amount unless you have a solid income.
Second, you should have at least 20% of the equity in your current property – this is how bridge loans work the best. The bare minimum requirement will be 20%, and if you don’t have that, you probably will not qualify.
Lastly, you absolutely need to be committed to paying the loan off quickly – we are talking within 6-12 months. You will need to have an appraisal on your current property, and your bridge loan options will be lowered if your appraisal comes back lower than expected. All in all, bridge loan lenders will scrutinize your property on the market more than the home you want to buy in order to ensure it is priced to meet the bridge loan’s term period.
Always contact a professional bridge loan lender like the experts at RTI Bridge Loans in Los Angeles and Orange County to understand more about requirements for your specific situation. Everyone has situations that are unique, and you will understand more information if you speak with a pro.
Common Bridge Loan Rates
Closing costs for bridge loans usually range from 1.5%-3% of the loan amount. Bridge Loan Rates can be pretty high, usually around 8%-10% depending on how much you are borrowing as well as your credit profile. Steer clear of bridge loan lenders that ask for an upfront deposit in order to approve your loan – they are most likely not a legitimate lending source. Contact the pros at RTI Bridge Loans to discover your loan rate.
What Is A Loan To Value Ratio (LTV)?
It’s important to understand what an LTV is before taking out a bridge loan. Bridge loan lenders typically have a lower loan to value ratio than traditional mortgages taken out of banks. Bridge loan lenders generally allow an LTV ratio of 70%-75%. Residential bridge loans can be a small amount of only $20,000 to a massive loan in the millions.
Final Thoughts – RTI Bridge Loans
Using a bridge loan is a great idea for people who are set on money and have enough to pay multiple mortgages at the same time. They are also great for people who are moving and buying a new property but have yet to sell their existing one.
RTI Bridge Loans is a highly experienced bridge loan lender in California, serving Los Angeles County as well as Orange County. It’s crucial to know and trust your bridge loan lender and find one who wants to work with you and gives you reliable service. Contact RTI Bridge Loans today or Call now at (562) 857-2285 to learn more about how a bridge loan will benefit you.
