Bridge loans have been used for home buying and property investment for decades to fill the gap in capital when cash is tied up in other real estate. But do they still exist? And if so, how do you get one?
Home Buying and Bridge Loans:
How They Work & Why You Need One
Bridge loans have often been used in the past to fund down payments and finance home buying until equity in a currently held property can be liquidated.
Example: You want to purchase a new home but need a 20 percent down payment which you will only have access to once your current home is sold. A bridge loan could give you the money you need to purchase your new home right away, and then you could pay it back once you sell your old residence.
Where Can You Get a Bridge Loan?
Speeding up the home buying process and using bridge loans sounds great right? The bad news is if you call local mortgage brokers or most lenders that advertise online, they will tell you that bridge loans don’t exist for residential properties anymore. They have proven just too risky or unprofitable for most lenders in the past. So what’s the point in teasing you with this article?
You haven’t just been Punk’d. You may find some bridge loans available from local banks if you have a great relationship with the manager and a healthy bank balance. However, there are actually many other options available for those interested in home buying and bridge loans to take advantage of current fire-sale prices on real estate and rock bottom interest rates. They are just called by different names.
Creative, Alternate Solutions for Finding Bridge Loans
Don’t worry, you don’t have to be a modern day Sherlock Holmes or get involved in any mortgage lending mischievousness to find alternate solutions for getting the cash you need to lock down that sweet real estate deal you have your eye on.
Bridge loan options:
- Take out a home equity loan or line of credit.
- Refinance your current home to tap the equity.
- Get a hard money loan.
- Apply for a secured line of credit.
- Take out a signature/unsecured personal loan.
- Take out a new mortgage loan cross-collateralized by other properties you own.
Which option is right for you depends on what your credit looks like and how much equity you have in your current home. Home equity loans are likely the least expensive, while hard money loans can be the easiest to get if you have bad credit. Personal loans can be used even if you don’t have any equity in your current home.
Are Bridge Loans Easier for Real Estate Investors to Find?
The short answer is yes. Various breeds of bridge loans exist for both commercial and residential real estate investors.
Large commercial lenders frequently provide bridge loans for acquisitions and developments. These loans, like hard money loans, are generally cross-collateralized and based on the equity in existing property portfolios. They can provide much needed liquidity and often less paperwork and hoops than a residential mortgage loan, but loan-to-values are often very restricted. These loans can be used to buy and build hotels, multifamily apartment buildings, churches, strip malls and more.
What about home buying for investors interested in flipping houses like on one of those reality TV shows? Perhaps one of the best things that has come out of the recent housing and lending crisis is the rise of transactional lending. An increasing number of transactional lenders are now providing gap loans with up to 100 percent financing, no credit check and no appraisals for those flipping houses and who already have qualified buyers ready to take over their properties. This has brought back true no-money-down real estate investing for those who know how to use it correctly. You don’t even have to buy one of those awful late night infomercial courses either.
Real Solutions for Repeat Homebuyers in Today’s Market
The biggest problems for home buyers seeking financing and bridge loans today are a lack of equity and the fact that it can take so long for their homes to sell in the current market. You can negotiate smaller earnest money deposits today and qualify for low down payment programs like VA home loans, FHA loans and even USDA home loans. Though let’s be honest, even if you have stumbled onto your dream home for sale, you don’t need to be paying two mortgages, or you may end up losing both to foreclosure. So what to do?
If you are really determined not to let that home buying opportunity go and bridge loans aren’t an option, make sure you rent out your current home on a month-to-month basis while you are waiting for it to be sold. Then consider leasing with an option to buy on your dream home so that you don’t have to take out expensive temporary financing until your old home is cashed out, but you can still move in right away.