An Example Of How Bridge Loans Work
A traditional bridge loan is helpful if you are an investor or a homeowner who owns a property already and is looking to buy a new property. The property owner does not have enough money for a down payment or an all-cash offer to buy the new property, but they do have enough equity in their existing property to finance a bridge loan. Borrowing against their equity will enable the owner to purchase the new property. When the property is purchased, the owner can move into it then sell the old property, which will pay off the bridge loan. Just how it sounds, bridge loans “bridge the gap” between purchasing a new property and selling the old one.
Let’s say your current home is worth $350,000, and you have an outstanding $200,000 loan balance (assuming you receive 80% of your current home’s value). For the first mortgage bridge loan option, you’d have a maximum loan amount of $280,000 – $80,000 for a down payment on your new home and $200,000 to pay off your current loan. For the second mortgage option, you’d have a maximum loan amount of $80,000 that would all go towards the down payment of your new home.
If you live in Los Angeles or Orange County, contact the Bridge Loan Lenders, RTI Bridge Loans for more information and your specific requirements about bridge loans.
Different Types Of Bridge Loans
The types of Bridge Loans we are going to talk about our residential bridge loans, commercial bridge loans, and bridge loans for seniors. Read on to learn more about these loan types and if they will be beneficial to your situation.
Residential Bridge Loans
This is the most popular route for real estate investors as well as homeowners to purchase a new home before selling their other home. It enables people to borrow against the current residential property in order to buy a new property. When you don’t have the necessary liquid funds for a down payment on a new home, bridge loans reduce that hassle and stress by enabling you to pull equity from the current home to use as a down payment for the new home. When the old property is sold, the residential bridge loan will be paid off.
Retiree And Senior Bridge Loans
Bridge loans might be the only option for seniors and retirees who don’t have enough income to qualify for a traditional home loan. With bridge loans, seniors have the ability to borrow against their current home equity to purchase a new home, minus providing proof of income and being approved on their debt to income ratio. When the old house sells, that serves as the payment of the bridge loan.
Commercial Bridge Loans
Commercial mortgage bridge loans are available to commercial property owners who want to borrow against existing real estate in order to afford a down payment or purchase a new commercial property. These short-term loans for commercial real estate help the real estate owner when they do not have enough liquidity but a lot of equity to borrow against. When the old commercial property is sold, the bridge loan is paid off. Commercial loans are slightly more complex than residential bridge loans as bridge loan lenders will require extra documentation and info in order to process that loan. Due to this, commercial bridge loans usually have a lower loan to value ratio (LTV).