Real Estate Investors: How to Use Bridge Loans Better
If you are looking for a new property but are not quite out of our old home yet, you don’t need to wait to sell your first home before buying a new one. While the “one-at-a-time” approach is often suggested by experts in home purchases, it is possible to secure a short-term loan to cover the down payment on your new home while you are still paying the mortgage on your existing home. Bridge loans are meant to serve as a bridge between the costs of maintaining one home and purchasing another.
Bridge loans are meant to be short-term and are often secured by the home you already own. Once you sell the first home, you can close the bridge loan or continue to pay two loans. For simplicity and to avoid excessive debt burdens, many homeowners chose to be finished with the bridge loan once the first home is sold. These loans may be taken from a few months to up to 5 years and there are different terms covering each one. As with many short-term loans, you may be facing high premiums and hefty interest rates, but the higher rate may be worth the convenience of being able to jump at the chance to purchase a home you like rather than having to wait for the lengthy process until after it is sold.
Given the costs involved in taking a bridge loan and the possibility of having to deal with two mortgages and interest payments, it is essential to determine if a bridge loan is really right for your circumstances and to figure out how to use bridge loans to your advantage. When it comes to real estate investment, a bridge loan may make the difference between making a large amount in an investment and missing out on an opportunity entirely. Therefore, unless you see a property that is a potential gold mine in an area that will increase in value, it may be worthwhile to sell your first property before buying a new one. However, a bridge loan can be tremendously helpful in allowing you to grab opportunities that will increase in value. You may want to find a bridge loan that has a few years rather than months of repayment. In addition, you can find loans with terms that do not require you to start paying off the loan for several months. This can give you some time to sell the first property or to start to see a return on your new investment, through rents and other revenue.