Owning real estate can be a great way to develop your wealth. It is also a major goal for a lot of people. Of course, turning that goal into reality isn’t always easy. Perhaps you don’t have money for a down payment or need to sell your current house to buy a new one. These situations and others can be helped by real estate bridge loans. Read on to learn more about buying a home with a bridge loan.
How Bridge Loans Work
A bridge loan is a type of short-term loan that is secured by property you already own. For example, if you are moving from one house to another but haven’t sold your original house yet, you can use a bridge loan against your original house to make a down payment on the new house.
It is a way to use the equity from your existing real estate to help you buy your next home. This can be used in a few different scenarios and with many benefits.
How You Can Use Bridge Loans
- Moving Homes: As mentioned above, you can use a bridge loan to help you make a down payment on a new home before selling your existing home. You can also pay off your existing mortgage. Typically, you can receive around 80% of your current home’s value. So, if you have already paid off more than 20% of your mortgage, you will get additional money for a down payment.
- Second Mortgage: Buying additional real estate as an investment can be a good way to build your financial portfolio. However, coming up with a down payment for a new mortgage isn’t always easy. If you have an opportunity you want to move quickly on, this is a potential way to make it happen.
- Inheritance Buyout: Often, heirs receive real estate that they split between them. You can use a type of mortgage called an estate loan to buyout siblings or other co-heirs. If you need to make a down payment on that loan but don’t have the cash, you can use a bridge loan against your portion of the inheritance.
Benefits and Drawbacks of Bridge Loans
Using a bridge loan to come up with a down payment means you can make an offer on a new house without a sale contingency. This can make your offer more attractive and potentially help you negotiate a lower price. Additionally, bridge loans are meant to be short-term. So, you may be able to make interest-only payments until you sell your real estate.
However, bridge loans are often expensive. They have relatively high interest and you will need to cover additional closing costs. Furthermore, if you are paying off a mortgage and a bridge loan, it can add up quickly. It is important to remember that you may not sell your original house for a while.
If a bridge loan sounds like a good idea to you, learn a little more. Try searching for lenders in your area. Look for a capable and informative hard money lender Los Angeles residents can count on to help them navigate the world of bridge loans.