You may know what a bridge loan is, but do you know when to use one? Many investors miss out on big opportunities because they fail to leverage investing tools around them. Short-term bridge loans are used by many to leverage themselves in the market and close on properties. When should you use a bridge loan? Continue reading to find out.
What’s a Bridge Loan?
Also referred to as gap financing, bridge loans are a type of short-term loan that is meant to “bridge the gap” between selling your old property and buying a new one. Investors who find themselves in a situation where they must sell a property to acquire a new one will use a bridge loan to leverage themselves during the purchase. The money in a bridge loan is backed by the equity from your current property, so the money from the sale will pay off your old property and the bridge loan, leaving you with just a new mortgage.
Bridge loans remove the need for contingencies, meaning you’re able to purchase your new property faster. Typically, sellers prefer a buyer that has no contingencies, since these buyers do not rely on the sale of their current home to purchase a new one.
When Should I Use a Bridge Loan?
You Want to Buy a Property Before Your Current One is Sold
To avoid the stress of financing a new property while selling your old one, many investors use bridge loans to buy a property before their current one is sold. A borrower can use the equity they already have in their current property to fund their next purchase, making it the perfect short-term option for an investor who is determined to buy even while in the process of a sale. The loan can be paid back within anywhere from a few weeks up to a year, so you won’t have to worry about long-term debt.
You Are Moving and Need Extra Funding
Bridge loans are commonly used to assist in a geographical relocation. Let’s say for example, your job is moving to a different region and you need to sell your home and purchase a new one all within a strict time frame. If you need extra funding during your move, a bridge loan can be the perfect financial tool to hold you over in the time between selling and moving into your new property. Don’t be stuck waiting for your old property to sell, a bridge loan lets you move into your new home while your old one is still waiting to be closed on.
The Seller Won’t Accept a Contingency Offer
Want to persuade your seller? Easy, just remove contingencies. It’s common for sellers to reject offers that include contingencies, especially in today’s market where homes sell quickly and receive multiple offers. It’s not rocket science; the seller wants to accept the best offer that will get their home sold the fastest. Removing contingencies does exactly that; you’re a better option for the seller since your deal doesn’t depend upon the sale of another property. A bridge loan will remove the contingencies from your deal, making you the prime pick.
Do you have a real estate project you’d like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to acquire a Bridge Loan on a property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.