The use of bridging financing is typically used for real estate sales . This type of financing is used if a home is purchased before payment is received for an existing sale. The most common option which is available in this situation is a bridge loan. However, there are advantages and disadvantages to this type of financing option. You will need to learn the pros and cons to make an educated decision.
Obtaining a bridge loan is the best idea when you are replacing a home and your existing home has not yet sold. This type of loan can provide equity from an existing home that allows you to purchase a new home. A bridge loan provides financing if you do not qualify for traditional financing until your current home has sold. The use of bridge financing is only good when current homes can be sold in a short period.
Bridge loans allow you to make a down payment on a property without selling off other assets. One advantage of use bridge financing is that a borrower may want to use the money from the sale of a home to purchase a new property. The bridge loan allows the borrower to pay all or part of the payment that is required at closing.
One disadvantage with bridge financing is that there are two sets of closing costs and fees. Money from the bridge loan is used to pay interest for a 6-month period. The amount of interest for a bridge loan will typically be one-half to a full percent higher than a current 30-year fixed rate mortgage. The amount of money that is left may not be as much as expected when paying closing costs and your interest payment. There needs to be enough equity in the existing home to cover all the fees to make this option viable.