Bridge loans are a great tool that can effectively help those looking to sell an existing home and buy a new home. Connecticut bridge loans allow borrowers to make an offer on a new home or homes without having the offer contingent on the sale of their existing home. The fewer contingencies there are in an offer, the higher chances you have of getting a good deal.
With a bridge loan, you can carry the mortgage on your existing home, while taking out a mortgage on a new home. Bridge loans are also called or known by other names such as “swing loans” or “gap loans.” A bridge loan is a short-term loan, and therefore, it usually has a higher interest rate compared to conventional/ traditional home loans.
There is an inherent risk that comes with bridge loans mainly because your existing home may not be sold within the specific time frame indicated in the bridge loan contract. Considering the length of time many homes sit on the market nowadays, it’s advisable to get a bridge loan for a period of one year, unless of course you’re confident that you can sell off your existing home faster than that. Many lenders usually issue bridge loans for only six months, which means that you’re going to have to renew the bridge loan if you’re unable to sell your existing home within the six-month period.
We will be discussing how Connecticut bridge loans help people effectively sell in a stagnant real estate market. Stick around if you want a more in-depth look into this topic.
Types of Bridge Loans
There are two types of bridge loans and we will be discussing them in this article. The first type of bridge loan is great for those with more limited available funds. It allows borrowers to borrow enough money so they can pay off their existing mortgage, with still enough left to make a down payment for a new home.
This type of loan is convenient because you only make your regular monthly mortgage payments for your new home. As soon as you sell off your old home, you pay back all the accumulated interest and outstanding balance of the mortgage payments from your old home that the bridge loan covered.
The next most common type of bridge loan is targeted towards people with more available income. Connecticut bridge loan gives borrowers the money they need to fund the down payment of a new home. Borrowers continue to make the mortgage payments on your hold home, while they make the mortgage payments for their new home. Once they are able to sell off their old home, the accumulated interest and principle on the bridge loan for the down payment is then repaid.
Simply put, bridge loans effectively have you, the borrower, carry two mortgages at the same time. For this reason, the income requirements are much more rigorous compared to a straightforward mortgage loan. Some of the requirements include having very good income with little to no debt and excellent credit score. The amount of money that can be granted to you will depend on several factors as well.
Some lending companies will let borrowers borrow a certain percent of the market value of the home they’re selling, less the outstanding balance. For example, your existing home is worth $250,000, and you owe a balance of $100,000 on the mortgage. This means you’ll be able to borrow some percentage of the $150,000 difference.
Other lenders, on the other hand, will only let you borrow a certain percentage of the equity you have in the current mortgage. This means that if the mortgage you took out on your current home was worth $150,000 several years ago, and you still owe $100,000, you will be able to borrow a part of the $50,000 equity. It doesn’t matter that the home is worth $250,000 now.
The chances of you getting your bridge loan approved is better if you use the same mortgage lender that you use for the mortgage of your new home.
Apart from the rigorous requirements that you must fulfill to get a bridge loan, the reality of carrying three loans (your original mortgage, your new mortgage, and the bridge loan) can be rather unnerving. This is because you’re running the risk by assuming that your current or existing home will sell, or that you’ll be able to sell it before a specific time frame is up. There’s also the risk that you’ll end up selling it for less than the price you had in mind.
Are There Alternatives to Bridge Loans?
If you’re still unsure about whether getting a Connecticut bridge loan is worth it, don’t worry; there are alternatives to bridge loans. For instance, you can loan or borrow money for the down payment on your new home from your 401k or any secured assets that you own. In many cases, you can actually take out a home equity loan against your current or existing home and then use the proceeds to pay for the down payment of the new home.
In any of these cases, however, you still need to meet certain requirements to carry two mortgages. If your financial situation isn’t stable or won’t allow that, you’ll have to put in the work to make your current or existing home as appealing as possible so that it gets off the market right away. You might even sell your current home first, and then rent until you find a new home you want.
Conclusion
A Connecticut bridge loan may be a good option for those that want to purchase a new home before their current or existing home has been sold. This type of financing option is great for businesses that need to cover operating expenses while they wait for additional long-term funding.
The application and underwriting process for bridge loans is faster compared to traditional loans, which is why they are a popular choice among homeowners that need quick funds to purchase a new home before they have sold their current property.
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Thomas Jackson is a dynamic and talented content writer at WonderWorldSpace.com, renowned for his engaging and informative articles. Beyond his professional pursuits in writing, Jack is also known for his deep passion for fitness, which not only shapes his lifestyle but also influences his work.