It can be a very scary situation when, as a buyer of a new house, you are having trouble selling your old house in order to pay the down payment on the new purchase. This certainly puts the deal in high jeopardy.
One solution in such a situation is taking advantage of a bridge loan (also called a swing loan), which you would get against the equity of your present property. Clearly, you will be able to borrow more money the larger your equity on the existing home. The loan can be held until you sell your current property.
Yet, there are some restrictions on bridge loans and usually they are short term being taken out for maximum of 3 years. The loan is taken out for a short period just to have time to arrange more permanent financing. Once that is done, the bridge loan will be paid off with the obtained money. There is a loss involved, because the bridge loan has a higher interest rate.
Yet, these loans can be arranged quickly and smoothly, without requiring a lot of paperwork. Bridge loans are often used in three situations: wanting to quickly buy a property, taking advantage of a short-term opportunity, or retrieving a home from foreclosure. Once the property is sold or refinanced, the loan is automatically paid back.
It is in unusual circumstances or emergencies when bridge loans are taken out, just like hard money loans. What differentiates them is that hard money loans refers to the source of the loan, which can be an individual, a private or an investment company. On the other hand, a bridge loan refers to the duration of the loan. Normally, the length of it is only 3 years and the interest rate can range from 12% to 15%. Considering the Loan-to-Value ratio, it cannot exceed 65% for commercial properties and 80% for residential properties. Additionally, the timeframe for payoff can be closed or open.
Usually banks do not offer real estate bridge loans, because of the minimal documentation and high risks involved. Since the risk is quite high, the banks do not usually offer this kind of lending; they would have a hard time explaining it to the government or investors. Thus, it is individuals, businesses, or investment pools that usually offer bridge loans.
However, it is popular in corporate finance and venture capital, because they quickly offer small amounts of cash to be used in major private equity financings. Additionally, it is a perfect option for a company when it needs some time while looking for a larger investor.
Bridge loans are not perfect for all situations, but they can really save the day.
One solution in such a situation is taking advantage of a bridge loan (also called a swing loan), which you would get against the equity of your present property. Clearly, you will be able to borrow more money the larger your equity on the existing home. The loan can be held until you sell your current property.
Yet, there are some restrictions on bridge loans and usually they are short term being taken out for maximum of 3 years. The loan is taken out for a short period just to have time to arrange more permanent financing. Once that is done, the bridge loan will be paid off with the obtained money. There is a loss involved, because the bridge loan has a higher interest rate.
Yet, these loans can be arranged quickly and smoothly, without requiring a lot of paperwork. Bridge loans are often used in three situations: wanting to quickly buy a property, taking advantage of a short-term opportunity, or retrieving a home from foreclosure. Once the property is sold or refinanced, the loan is automatically paid back.
It is in unusual circumstances or emergencies when bridge loans are taken out, just like hard money loans. What differentiates them is that hard money loans refers to the source of the loan, which can be an individual, a private or an investment company. On the other hand, a bridge loan refers to the duration of the loan. Normally, the length of it is only 3 years and the interest rate can range from 12% to 15%. Considering the Loan-to-Value ratio, it cannot exceed 65% for commercial properties and 80% for residential properties. Additionally, the timeframe for payoff can be closed or open.
Usually banks do not offer real estate bridge loans, because of the minimal documentation and high risks involved. Since the risk is quite high, the banks do not usually offer this kind of lending; they would have a hard time explaining it to the government or investors. Thus, it is individuals, businesses, or investment pools that usually offer bridge loans.
However, it is popular in corporate finance and venture capital, because they quickly offer small amounts of cash to be used in major private equity financings. Additionally, it is a perfect option for a company when it needs some time while looking for a larger investor.
Bridge loans are not perfect for all situations, but they can really save the day.
About the Author:
When you search private capital blog into Yahoo search, do you discover the thing you need?
0 comments:
Post a Comment