If you haven’t applied or gotten a bridge loan in the past, you most likely have never heard of the term. Don’t worry, as you are not alone! Many people do not know what a bridge loan is or what it is used for. This article will explain what a bridge loan is and if it is right for your financial needs.
So what is a bridge loan anyway?
A bridge loan is a loan intended to ‘bridge the gap’ between loans when there is a lack of capital available. Bridge loans are typically used when buying real estate, whether for commercial or residential purposes. These types of loans are also marketed as interim loans, swing loans or gap financing, but the important thing to remember is each term means the same thing.
How does a bridge loan work?
The best way to describe how a bridge loan could work for you is through an example. So, imagine your current home is on the market but you want to put a down payment on your dream home. Unless you have fully paid off your mortgage on your current home, a bridge loan might be just what you need. In this scenario you could use a bridge loan in two ways. If you still have money left on your mortgage and you don’t want to wait to sell your home, you can use a bridge loan to pay off your mortgage on your old home and put a down payment on your new one. Then once your old home sells you can use the proceeds from that sale to pay off the bridge loan in full.
Another way you can use a bridge loan for residential real estate is to use the bridge loan only to put a down payment on a new home. This means you will be paying the mortgage (if you still have one) on your old home and paying the mortgage on your new home. While it is not ideal to be paying two mortgages simultaneously, it might be just what you need to do to lock in your dream home when finances are tight. Once you pay off your old home’s mortgage and/or sell it, you can use those proceeds to chip away at the bridge loan you took out on your new house.
Businesses can use bridge loans in two ways: real estate or while waiting for long-term financing. Commercial bridge loans for real estate purposes work very similar to bridge loans used by homeowners. If a business wants to expand to a new office or snatch up a better location but is short on capital, a bridge loan alleviates some of the financial stress without putting their growth goals on hold.
Bridge loans are also used by businesses when they are waiting for long-term financing to come through. For example, if a start-up is expecting to bring in more equity financing but is having cash flow problems, a bridge loan is a perfect way for that business to keep operations running until their long-term financing goes through.
If you want to buy your new home before your old one sells or are a business owner with a temporary cash flow problem, this type of loan might be perfect for you and your financial situation. For more information on bridge loans in Denver, set up your consultation with Bold Funding in Denver, Colorado today.