Bridge Loan 101: What You Need to Know?

When you fall short of money and no bank is offering you the loan then opting for non conventional methods will be the best. Bridge loans here happen to be a reliable and trusted option. Commonly known as hard money loans, they will help you get the financing within a short span of time. But do you actually know what a bridge loan is or how you can get one? Make sure you continue reading ahead to get proper insights about it.

What is a bridge loan?

A bridge loan or hard money loan is short-term financing you can get for a time period until you find something more stable and long-term. This type of loan is generally preferred by homeowners when they are faced with sudden transitions. They can use the loan amount to buy a new home, cover down payment, mortgage payments, etc., while waiting for the payment from the sales of their last home.

Besides this, you might not know this, but most of the real estate investors often rely on bridge loans, especially when they are flipping properties.

How does a bridge loan work?

To make it simple for you, you just need to remember bridge loans are not like traditional loans. They vary a lot in terms of cost, structure and terms. In case you qualify for this type of loan, you can borrow a large sum of money, anywhere between a few hundred dollars to more than $ 1 million.

For example, here, a bridge loan mortgage might involve cashing out equity from your current home and then using that amount as a down payment for a new property. Also, you can consider getting a bigger mortgage for the newer property. In another case, bridge loans use both homes as collateral. Here, there can be some interest-only payments or monthly payments, while the others will require a balloon payment at once.

Bridge loan requirements

• Credit score 

The bridge loan lenders are not dependent on a lengthy process for approving the loan. As they have much more underwriting flexibility, you can easily get a bridge loan with a credit score as low as 500. However, there are certain lenders that can require a score of 600 as well.

• Debt to income ratio

You can find bridge loan lenders who allow for a DTI ratio as high as 50%. However, the requirements of each lender vary greatly. So you need to research and compare all the choices available.

• Equity

If you opt for a traditional bridge loan, most lenders will require you to provide at least 15% equity in your current home. However, some might also ask you for a 20% equity.

You can get a bridge loan easily as there is minimal paperwork. But instead of rushing it’s better to wait and trust a good lender for financing.

How to apply for a bridge loan?

You can find a lot of lenders who provide bridging loans in Manchester, but there is a specific process you have to follow to apply for it.

• Determine the home equity value

If you don’t know what a home equity value is, then it is the difference between the current home’s value and the outstanding balance of your current mortgage. Here, most lenders will only allow you to borrow up to 80% of the home equity. So the remaining amount will come out of your pocket.

• Look for a good lender

There are a lot of bridge loan lenders who can provide you with the required financing as and when needed. But remember, not all mortgage or bridge loan lenders are the same. It is always better to research the top choices and compare them in terms of interest rate, tenure and other aspects before you make the final decision. You have to be extra careful here so that there are no problems in the future.

• Understand your options

Now, when you have found a good lender, you need to contact a loan officer to know about the requirements and how everything works. The process might vary a bit for different lenders. So, make sure you get a proper idea of it before you take any steps.

Conclusion

Bridge loans have become a safe and reliable option for most investors to acquire the financing they need easily. But if you are facing any difficulty, then you can consider trusting Bridge Loan Direct for assistance. They are the most reputable lender in the market. Whether you are planning to get a bridge loan now or in the future, their experts can help you with it. They will maintain clear transparency and help you get a loan that fits your requirements well. The professionals will guarantee you a lower interest rate and long repayment tenure.