A bridge loan is basically a form of temporary loan, usually taken out for up to 2 years pending the acquisition of longer or better-than-ideal long-term financing. This loan concept is not new, but in recent years many bankers have begun to recognize its value in times of financial uncertainty.
bridge loans have many uses and there are many different types of bridge loans available. For example, you might want to borrow money to purchase a home, but are uncertain about how much you can actually afford. In this case, a bridge loan can help you increase your ability to afford the home. If you know you will be spending a few months in a temporary job, a bridge loan can help you qualify for federal or state assistance during the time you're unemployed. At the same time, a bridge loan might let you pay for certain aspects of the rental of your home while you search for a permanent place to live. Here are some examples of situations in which you may qualify for bridge loans.
If you are uncertain whether a higher interest rate is better than a lower interest rate on a conventional loan, a bridge loan can help. A conventional loan usually has a fixed interest rate and term that cannot be increased. On the other hand, a bridge loan has a variable interest rate and term. Because interest rates usually fluctuate a lot from one day to the next, the amount you will borrow in order to get a higher interest rate is completely up to you. You could get a six-month term, but if you have good credit you could probably get a twelve month term - so it really depends on your situation.
Another situation where borrowers use bridge loans is when they need to pay a large deductible on their first mortgage. Typically, borrowers pay off the entire balance of the first mortgage before they refinance with a conventional loan and get a fixed interest rate. With bridge loans, the interest rates are usually a bit higher, since the borrower is stretching out the duration of the loan by paying off the entire existing mortgage first. However, the high interest rates are offsetting the advantage. Click for more info about bridge loans.
Finally, another common use of bridge loans comes when a homeowner has an existing appraisal value or market value, but would like to raise that value higher. Usually, a lender will not consider a new appraisal unless there is no chance of getting that price increase unless the new appraisal is lower than the appraised value. However, some bridge loan lenders will consider an appraisal if the new appraisal is significantly lower than what the borrower already has. This might seem like a catch-22, but in many cases, a new appraisal may be required in order for the borrower to get a competitive new mortgage rate.
Bridge loans are perfect for borrowers who need immediate cash flow but do not necessarily need to pay off the balance of their existing mortgage. Since these loans are short-term, they do not require a lot of credit history. Therefore, they can be used by people with bad credit and even by people who have bankruptcies lurking in their immediate future. In fact, in many cases, the only prerequisite for bridge loans is that borrowers must already have an existing loan with a low rate of interest. The amount of money available through this type of financing can make a big difference in a homeowner's long-term financial picture. If you find yourself in one of these situations, an online search for bridge loan lenders will provide you with a number of options for expediting your cash flow. Knowledge is power and so you would like to top up what you have learned in this article at https://en.wikipedia.org/wiki/Small_business_financing.
