At virtually every webinar or live presentation we have made to mortgage professionals and real estate agents, every person in attendance recalls at least one recent situation that could have been saved by a bridge loan solution. Below, we will cover the most common situations where a bridge loan may be applicable.
- Multiple-offer buyers: These buyers are competing with other offers for the same home. Bridge loans allow them to put in a no-contingency offer and compete with cash buyers to close quickly.
- Retiree buyers: These buyers often have high equity but little cash. Bridge loans may provide up to 100% of the purchase financing, using the equity in a buyer's existing home. This allows a retiree to purchase without the need to tap into or liquidate retirement savings.
- No or low down payment buyers: Qualifying for a traditional loan with no or low down payment can be challenging as guidelines for down payment assistance programs can be stringent. Bridge loans are perfect for buyers who aren't liquid now, but expect to be in less than a year from the sale of a property, business, investments, inheritance or other means.
- Self-employed buyers: Many self employed individuals write off significant expenses in order to keep their net-income down for tax purposes. This is a double-edged sword because it may present challenges when qualifying for mortgage financing. A bridge loan allows a self employed borrower to purchase today, and to file taxes in the subsequent year to qualify for traditional financing.
- Family issue buyers: When buyers are going through a divorce or a death in the family, traditional banks often won't get involved until everything is settled. Bridge loans give this category of buyers the flexibility to move faster.
- Buyers who own a dated home: Buyers who want to purchase now, but also who have a home to sell that needs repairs and/or freshening up, may find a bridge loan to be a great solution. By utilizing the equity in the current home, a borrower may purchase a new home, move out and have the time needed for repairs and professional staging. Depending on current equity, many times this type of bridge loan not only provides the financing for the new purchase, but also additional funds needed for the repairs and staging.
- Conventional fallout: Things happen. When a buyer receives the unfortunate news that their mortgage application is unable to be approved, a bridge loan may come to the rescue. Depending on why the application was denied and the ability to cure the defect within a reasonable time, a bridge loan may be the way to get into a new home.
Bridge loans can be a favorable solution in any market; hot, cold or tepid. It is our goal to educate mortgage and real estate professionals on the flexibility and power of bridge loans to solve common problems that present themselves every day. We aim to shed misinformation and mischaracterization of these hard money loans, or as being unsavory, and help to see how valuable, safe and exciting they can be.
