Alex was out on a Sunday drive when he saw a "For Sale" sign on a house in his favorite neighborhood. Alex decided to take a closer look. Alex was delighted to find that an open house was scheduled for that day and that he would have an opportunity to take a look at the house. The house was spectacular. It had every feature Alex wanted and some additional features that he found very attractive. Alex hadn't planned on selling his house at the present time, but he required the proceeds from the sale of his house to close on the new home. He needed some time to get his house ready for sale. Alex was worried that if he made his offer on the new house contingent upon his selling his old house, the seller would not accept the offer. In considering his options, Alex recalled a friend telling him about obtaining a bridge loan in a similar situation. Alex needs more information about bridge loans in order to make a decision.
What Is A Bridge Loan?
A bridge loan is a short-term loan designed to assist a borrower in Alex's situation. When a borrower has sufficient equity in an existing home, the borrower can borrow against the equity in the existing home in order to finance the down payment on a new home. Generally speaking, the duration of a bridge loan is about six months. In some cases, a lender will offer some option to extend the initial term of the bridge loan.
What Questions Should a Borrower Ask Himself or Herself in Considering a Bridge Loan as a Financing Alternative?
- What is your credit rating?
- Do you qualify for a good interest rate?
- What terms is the lender offering you? Can other lenders offer any better terms?
- Do you fully understand the terms of the loan the lender is offering?
- What is the repayment period of the bridge loan? Is there any option to extend the initial repayment term?
- What is the cost of the loan to you, including the cost of applying for the loan, as well as closing costs?
- What is the maximum monthly payment you can afford?
- Are any other financing options available?
Copyright 2013 LexisNexis, a division of Reed Elsevier Inc.