At California Mortgage Advisors Inc., we understand that things change, often rapidly, and our customers want to be able to move on those changes. We offer bridge loans to our clients, which allow borrowers to act when the time is right. Our Mortgage Advisors are available at (800) 927-6560 to answer borrower questions and explain their bridge loan options in simple, understandable terms.
What is a Bridge Loan?
A bridge loan is a very specific type of loan designed to help borrowers finance the purchase of a new home while they wait for their existing home to sell. While the specific terms of each loan will vary wildly based on several factors, most bridge loans are for enough to pay off the current balance of the first home and to provide a specific down payment amount on the new home.
The term bridge loan is used more as a descriptor of the loans function than as a designation for specific loan terms and conditions. This makes classifying bridge loans or even identifying commonalities between two separate loans challenging. A bridge loan could be a large loan used to pay off an existing mortgage and to fund the down payment on a new home. It could also be a second loan taken out against the equity in the original home.
Regardless, a CMA Mortgage Advisor can help borrowers make a decision regarding specific terms and conditions based on the borrower’s current financial situation and current housing market trends.
Advantages of a Bridge Loan
The main advantage of a bridge loan is that it allows borrowers to move ahead with the purchase of a new home without having to be held hostage by the sale of their existing home. This allows borrowers to take advantage of purchasing and closing quickly if their ideal home becomes available.
Terms and Conditions
Unlike other loan types, there are no generally accepted industry standards when it comes to the terms and conditions of a bridge loan. Instead, each loan is a reflection of internal lender guidelines, borrower needs, and an evaluation of the borrower’s finances. However, borrowers should consider several key aspects of the loan when determining which loan terms work best for them.
Repayment Schedule
The first consideration is repayment schedule. A bridge loan is an extremely short-term loan. The lender expects the loan to be paid off in full after a set timeframe or when the original home has been sold. During the time between when the loan is taken out and when it is paid in full, the borrower will either make a full mortgage style payment towards the bridge loan or no payment will be made and interest accrued will simply be added to the payoff amount.
Bridge loan interest rates and additional costs vary from lender-to-lender. However, because a bridge loan is a short-term loan, borrowers can expect to pay a higher interest rate when compared to a traditional mortgage. Additionally, some lenders include fees designed to offset the increased level of paperwork and logistical complications associated with providing a bridge loan.
The main challenge when dealing with a bridge loan is that the borrower has to be able to potentially pay two mortgages or equivalent payments at the same time. This means that lenders are generally looking for high levels of financial liquidity as well as a low debt-to-income ratio prior to approving a bridge loan.
At CMA, we understand that no two borrower’s bridge loans are going to look exactly the same. Our Mortgage Advisors examine every borrower’s finances and loan needs on a personal level, searching for ways to cut costs and maximize value. While this occasionally takes a little more time, it also means our Mortgage Advisors can formulate loan terms and conditions tailored as close as possible to each customer’s expectations.
At California Mortgage Advisors Inc., we genuinely believe that we offer our customers the best mortgages in the industry. We have offered a variety of loans since 1993, which means our Mortgage Advisors have successfully matched tens of thousands of borrowers with loans tailored to meet their needs and unique financial situations. Our Mortgage Advisors are available at (800) 927-6560 to answer your questions or click here to apply online.
