Everyone who can obtain conventional financing should. However, not everyone can qualify for conventional financing when the need or opportunity arises. Individuals with high equity in their current home but low cash flow may find themselves in unusual situations. If markets cool off, it’s even more important for a home to be unoccupied, freshened up, and staged. A bridge loan can help beef up negotiating power, make a sale possible, and get people into a home, fast. Once the home is secured, refinancing out of the bridge loan without penalty, becomes possible.
One of the reasons many real estate agents and mortgage professionals aren’t aware of this loan product is because of the confusing name: consumer “bridge” loan. The term “bridge” is widely used in lending, often in a very different context. In commercial lending, it simply means a short-term loan. Many lenders advertise bridge loans, and the vast majority are referring to short-term, commercial or investment loans- not loans for purchasing a primary residence! In this alternate context, the term bridge loan is used to describe a short-term loan, secured by commercial property.
A residential consumer bridge loan is a niche loan that involves strict lender licensing and unique underwriting requirements. Most private and alternative finance lenders specifically avoid them! In the consumer world, that of residential real estate, a bridge loan describes a fast-closing, temporary loan that helps a homebuyer get into their next home.
The big difference between a commercial bridge loan and a consumer bridge loan is that the consumer bridge loan is an equity-qualifying loan, rather than an income-qualifying loan.