Consumer bridge loans fall into the category of “alternative lending”. Although alternative lending solutions tend to be on the surface, more expensive than traditional loans, many times the benefits greatly outweigh the costs. In this segment, we will discuss how borrowers may save money by obtaining a bridge loan, rather than spending more.
- Buyers may be able to offer a lower bid because a bridge loan, allows a borrower to compete with cash offers due to the speed and flexibility of funding with no contingencies. Because bridge loans are underwritten with the ability to exit, not the ability to repay; the document requirements are minimal, and many times an appraisal is not required.
- Buying before selling with a bridge loan allows the borrower to move once, from the departing home to the new home, without the need for any short-term, temporary housing if their home sells before closing on the new home, which can be expensive.
- Buyers using a bridge loan pay nothing until the loan funds. There are no upfront application, appraisal, or escrow fees before funding the bridge loan.
- Vacating the current home may allow for a higher selling price. Making minor improvements and professionally staging the home, presents the departure residence as turn-key and more attractive, thus selling faster and for a higher price. Also, removing the stress and hassles of decluttering, impersonalizing, keeping the home spotless, and leaving whenever a showing is scheduled has value too.
- Bridge loans are interest only. Borrowers only pay interest for the term of the loan they use and can pay it off whenever they choose with no pre-payment penalty.
- Buyers obtaining a bridge loan may be able to negotiate seller-paid concessions to help offset the costs of the bridge loan because of the speed and certainty of being able to close.
There are also soft costs that should be considered when deciding if a bridge loan may be the right solution. Time, stress, uncertainty, and missing strict deadlines all need to be evaluated when considering the right solution to your new home purchase needs.