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A Quick Guide to Bridge Loans

by Bret Evans 05/10/2020


Image by 3D Animation Production Company from Pixabay

Understanding the type of loan you're getting matters, to protect your financial interests. You also need to know when to choose one type of loan over another. So, should you choose a bridge loan? When might that be the best choice for getting into the home of your dreams? Here's what you need to know about this particular loan type.

What Are Bridge Loans?

Bridge loans typically provide temporary home financing, and are designed for use for six to 12 months. They carry an interest rate that is approximately two percent higher than a standard mortgage. These loans can "bridge" the gap between buying one property and selling another, allowing the borrower to get into a different home before their original home is sold and closed.

Who Can Receive a Loan Like This?

Anyone who owns a home and is trying to buy another one could potentially get a bridge loan. Just as with a traditional mortgage, though, you would have to qualify. Income and equity requirements must be met. There is also usually a debt-to-income ratio that's very important, since you'll have to make loan payments for a few months.

Why Would Someone Want a Bridge Loan?

When you're selling your home but you haven't found a buyer yet, you might find another home you want to buy. Since you don't have the funds from the sale of your current home, you wouldn't normally qualify to buy the other home. If you can get a bridge loan, though, you can buy the second home while still trying to sell the first one. When the first one sells and you receive the proceeds, you can use that money to pay off the bridge loan. Bridging that gap between the financing for the two homes can be vital in markets where housing is very competitive, or where you need to move quickly to purchase a particular home.

How to Get This Type of Loan

Getting a bridge loan involves talking to your bank or other lender, just like you would with another type of loan. Not all lenders offer bridge loans, so it's important to shop around. Additionally, your real estate agent can be a great resource when it comes to finding a bridge loan. Some agents even partner with lenders for these kinds of loans, to give their clients more options.

If you're not sure whether a bridge loan is the right choice for your home buying and selling needs, talking to your lender and real estate agent can help. There are times when borrowing additional money isn't a good choice, but these kinds of loans can also be very beneficial in certain real estate circumstances.

About the Author
Author

Bret Evans

Bret D. Evans is a real estate industry veteran, a 22-year successful career in an incredibly competitive environment.  As a native to the Bay Area and a homeowner in San Mateo County, his knowledge of the Peninsula’s residential real estate market is extensive and unparalleled.

Bret prides himself on giving his clients the most precise and up-to-date feedback on the state of the market, market trends, and comparable sales and property values; and providing clients with a realistic outlook on what they can expect to achieve in today’s market.

His many years of experience purchasing, owning, selling and renting properties, allows Bret to provide exceptional insight and knowledge at every level of the real estate transaction.  He has built a reputation for providing trustworthy, well-researched advice to his clients and is passionate about providing the best possible service.

Clients choose to work with Bret for his full-service, ethics, experience, and expertise.  He consistently displays his ability to satisfy clients in the buying and selling of their homes. His strong base of loyal repeat customers is the reason why Bret has been successful in the real estate industry.

In an ever-changing market, Bret is with you every step of the way!