Residential Bridge Loans

Many homeowners and homebuyers are not familiar with residential bridge loans. Bridge loans, also sometimes called swing loans, are short-term loans that usually come with high interest rates. The name is quite fitting for this type of loan because it fills in the time until the borrower can secure long-term financing. In addition to residential use, real estate investors and venture capitalists may take advantage of bridge loans. If this is something you are considering you should know that not all financial institutions offer these loans as they are considered high-risk as compared with other types of residential real estate loans and financing plans.

There are both advantages and disadvantages to using a bridge loan. These loans can give you capital right away, which can help in a variety of situations. One example might be in the case of an investor who wants to purchase property that is being sold at a favorable price and who plans to acquire more long term financing with lower rates in the near future. A homeowner may also decide to utilize one of these loans for a purpose like buying a vehicle and repaying the loan quickly as these are not long-term loans.

Another scenario might be that of a homeowner who is buying a new home and wants to use money from the sale of their current home for the down payment. The sale of their current home isn't closing until after the new home does, so a bridge loan gives them the funds for the down payment which will be repaid when the first home is sold. So as you can see, there are various residential applications for this type of loan. Now let's take a look at some disadvantages of and alternatives to residential bridge loans.

One disadvantage, as mentioned previously, is that all lenders may not offer these loans. So, you may need to do some shopping around to find a financial institution who does. Also, because these loans are considered high-risk the interest rate is going to be higher as compared with a more traditional type of loan. There may be collateral required to acquire one of these loans as well as an origination fee which can also raise the cost. Bridge loans are short-term and the term can vary anywhere from weeks to months. There are closed bridge loans which have a deadline for payment but more leniency when it comes to the length of the loan.

If you are a homeowner considering this type of loan, think about available alternatives first. You may be able to get a loan on your home's equity that can give you the funds you need. Equity is accumulated in your home after you make mortgage payments. The longer you've been paying on your mortgage, the more equity you have. It is defined as the amount of the original mortgage minus the amount you've paid. Home equity lines of credit may also be useful especially if you need the funds to make a purchase, such as a vehicle as mentioned before.

You might even want to try and acquire a personal private loan rather than a residential bridge loan depending on which type turns out to be the least risky and the most economical. This is something that can be discussed with the loan officer at the financial institution you have chosen for your loan. Weigh the pros and cons of a bridge loan carefully before making a final decision because as explained these loans can be high-risk for both the lender and the borrower, and if there are better ways to get the money you need you may want to consider alternatives.