It’s a common scenario. You’ve purchased a home, and your existing home hasn’t yet sold. You’re hoping that when it does, you can use the proceeds as the down payment on your home. Unfortunately the home you’re buying is closing before the home you’re selling, leaving you short on the down payment. So how are you supposed to come up with those funds? Through a bridge loan! But what is bridge financing?
Bridge financing is a specific type of home loan that “bridges the gap” between one mortgage and another. When you apply for bridge financing, you apply for a small amount of money, usually no more than what’s required for the down payment. Because these loans are also usually required only for short periods of time (between the two closings of the two properties,) these loans also usually have short amortization periods, generally no longer than 30 or 60 days. Once the first home sells, the bridge loan will then need to be repaid.
Bridge loans don’t only have to apply to situations when one home is being sold and another is being purchased. They can also be used when a new home is being constructed and the owner needs funds to complete construction; and they can also even be used to supply small businesses with short-term cash flow needs.
Bridge financing, while it is a unique loan option that suits many homeowners, can be a complicated loan option that are sometimes tricky to work out. And, they’re also not always for everyone. Although bridge loans can be placed in the first or second mortgage position, another type of second mortgage such as a home equity loan might be more beneficial to the homeowner.
When trying to find a bridge loan, it can be even more complicated to find a lender. Because these loans are more complicated than a conventional mortgage, they often involve a lot of time just to compare different rates and packages, and this is why you need to speak to a mortgage broker to help you with them. Mortgage brokers don’t only have a huge network of lenders that can quickly compare for you, but they can also help you with the entire process of a somewhat complicated bridge loan.
When you think bridge financing will help you in your own situation, give us a call at CMI. We’re mortgage brokers who can help with your bridge loan and we’ll help you sort it out.