Tips for Using Bridge Loans
December 4, 2018
Purchasing a new property is equally exciting and stressful, especially when you have another property that needs to sell in order to finance the new. In some cases a bridge loan can be a good solution, but they are somewhat rare. Let’s look more closely at bridge loans, what they are, and when they are a good option.
What is a Bridge Loan?
A bridge loan is a loan that is used to secure a new property without the sale of an existing property. In this case the existing property is used as collateral for the new loan. Bridge loans have a limited term, however, so it is important that the homeowner be able to sell the existing property or secure different funding before the loan term ends.
When is a Bridge Loan a Good Idea?
Bridge loans are a wise financial move for homeowners or business owners who intend to flip a property, because they plan to sell the property in a short amount of time. Because bridge loans are short term they also take less time to acquire, making them a good option for flippers who need to move fast to acquire a property. Bridge loans can also be a good decision in a “sellers’ market”, meaning an area where homes are selling above value and quickly. In general bridge loans are only a good idea when you are confident you can sell one of the properties quickly, whether it be your existing property or a new, flipped property.
When is a Bridge Loan a Bad Idea?
Because bridge loans have a limited term, usually under a year, a bridge loan is not a good idea if you aren’t confident in your ability to sell a property. Whether you are flipping a house that will take a considerable amount of time to renovate, or you are trying to sell a home in a buyer’s market, you’ll want to carefully consider how long you realistically think it will take to sell a home. Additionally, bridge loans have a higher interest rate, so they will be more costly than a traditional loan, which is fine if you will move the property quickly, but not if the process may drag on.
Bridge loans can be a great option for some homeowners or businesses, but they are not for everyone. To discuss whether a bridge loan is a good option for you call us at Maryland Private Mortgage. We specialize in specialty loans including bridge loans in Baltimore and the surrounding areas. We’d love to discuss your situation with you and whether a bridge loan is a good option.
The Maryland Private Mortgage Lending Team
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