Bridge loans come in quite handy when one is about to buy a property and there is no money available for the down payment, until the primary property gets sold. The new purchase could be an investment property or a home. Bridge loans are also used by businesses for buying new warehouses, office locations, and various other commercial properties. If necessary, a business partner can use a bridge loan to buy out the other partner.
In order to get approved for a bridge loan, the applicant must prove his ability to make both the mortgage payments, even if the primary property does not get sold immediately. The payments for the initial months need not be paid for most bridge loans; however, the interest would accrue in the initial months. Bridge loans are short-term in nature, and these loans are due upon property sale or after a year. The primary property is used for securing the loan, which then gets used as the new property’s down payment. As it is a short-term financial arrangement, the rates of interest and the fees are on the higher side when compared to regular or traditional mortgages.
The good thing about bridge loans is the fact that one can buy a new house or property, without having to sell the current business property or home. This is a really good alternative to have, especially in a market that is witnessing quick sales for real estate. With the bridge loan option, one would not be missing out on a property deal with a very good selling price. The negative sides of these loans tend to show up during times of a slow market. The individual would have to make two mortgage payments while the interest on the third is getting accrued. If there are no buyers found for the primary property within the first year, then one would have to make the bridge loan payments, as well.