In a typical situation when a homebuyer wants to dispose his old property in order to purchase a new one cannot fully finance the purchase of a new home. Some amount of money is needed. The bridge loan bridges the gap. The proceeds can be used to pay the needed down payment. When the old property is finally sold, the proceeds of the sales may fully pay off the bridge loan completely.
In the days of old, bridge loans were designed for landlords and real estate developers. In the modern times, the financial crises have prevented banks and lending institutions to extend huge amounts of home loans. Bridging loan has slowly evolved as an alternative, which is highly accessible even to individuals.
Bridge loans do not require stiff qualifications. The processing of the loan is fast and proves to be helpful to home sellers who need to finalize the deal for a new home. Bridge loans help avoid the possible delays brought about by “subject of sale” issues and long waiting periods. The deals may include the bridge loan to cover a regular mortgage later. With this, the borrower need not look for another lender to finance the new mortgage.
One of the downsides of the bridge loan is its being more onerous than the regular home equity loan. The borrower may find it difficult to pay two loans at the same time plus the related interests. Availing the bridge loan may also include paying high costs of administration, escrow, loan origination, appraisal, recording and title policy.