The house buying process is often a delicate balance of timing and finances, especially when attempting to sell and buy simultaneously. The sale and purchase of properties simultaneously can and often does result in some form of financial strain. Financial problems often occur because the homeowner plans on using funds from the sale to purchase the new property.
HML Solutions understands the eagerness of homebuyers and the practicality of simultaneous sales and purchases for investors, and we have a solution. Bridge loans can provide a short-term solution to the financial strain of a concurrent real estate deal.
Understanding a Bridge Loan
Think of a bridge loan as bridging the gap between purchasing a new property and selling an old one. For example, many homeowners may find a house to buy before selling their existing home. The bridge loan is a short-term financial product that can allow an existing homeowner to secure enough money for a down payment or finance the purchase of a property before selling their original property.
Most borrowers will use a bridge loan for the closing costs of a house. We allow borrowers to apply for loans up to 80% of their current home value and the value of the prospective property.
Securing a Bridge Loan Through HML Solutions
Many people prefer a bridge loan to a traditional loan because the application process is faster. However, speed does not equate to easier approval. Before approving a bridge loan, we look at an applicant’s credit score, income, debt-to-income ratio, and existing equity.
Applicants with inadequate equity in their existing homes will find it challenging to secure loan approval. Still, with an excellent track record with the mortgage provider, hope is not lost. We will need to talk with you and review your history before making any decisions.
Repaying the Loan
The term length for a typical bridge loan is about one year. The most efficient way to repay the loan is using the funds from selling your existing property. All of our loans have a designated payback date when we expect full repayment.
We know that loan terms are often complex. To avoid any confusion, we encourage clients to discuss questions or concerns with us. Also, we will lay out all expectations and responsibilities for clients before finalizing the paperwork.
Considering the Advantages and Disadvantages of a Bridge Loan
Bridge loans carry pros and cons like any other financial product. The primary benefits of the loan include:
- Competitive advantage in a seller’s market
- Avoidance of private mortgage insurance
- Quick financing
These loans are often more beneficial in a seller’s market because they can help eliminate financial contingencies. A seller is more likely to trust that a buyer’s deal will go through because of the possession of the loan.
A bridge loan can help you pay 20% or more on a purchase. Anything less than 20% requires PMI.
Finally, for the right candidate, it is easier to secure a bridge loan than other traditional loans. Receiving quick funding means you can make quick purchases or deals, which is vital to real estate success.
Despite the advantages of this type of loan, there are also several disadvantages to consider. The primary issues include:
- Higher interest rate
- Two mortgage fees
- Challenging qualification process
We have to charge higher interest than our other loan products because a bridge loan is short-term. The timeframe does not make lower interest a viable option for us as a company.
Besides the increased interest rate, homebuyers need to realize that they will often pay back a bridge loan in addition to their mortgage payment. Many people cannot handle the double payment.
Because of the increased responsibility of the loan, we make our qualification process more strict than with several of our other products. The last thing we want is for a homebuyer to feel overwhelmed with financial obligations.
Contact Our Team To Learn About Our Available Finance Options
A bridge loan might be right for you and your current financial situation, and if that is the case, we encourage you to call and apply. However, we want you to know that we have many loan programs and financial products to help with your situation. Whether you are looking to buy a home or invest in real estate, contact the team at HML Solutions today.