Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
New Yorkers often struggle to get the downpayment when buying a property in New York City. Getting a mortgage isn’t easy. Many options help people get to ownership of an NYC home. The two most significant concerns buyers face when getting approvals are income and the down payment. VA loans do not require a downpayment; however, civilians don’t have access to that type of loan. Saving up for a down payment isn’t easy, especially if you want to upgrade your home. Depending on the situation, buying a bridge loan to buy a house might be a good option.
A Bridge Loan to buy a house “bridges” the gap between selling and buying. Sellers can use it to purchase a new home right away. Their funds are tied up with their home sale, which sits on the market but has not sold. This loan is short-term. Some sellers can also finance the buyer in the short term. It’s called seller’s financing.
Lenders expect to get repaid with the property sale. However, bridge loans carry high fees and interest rates. Some typical requirements to qualify are having good credit and having at least a 20% equity in your property. Most bridge loans take place in a hot real estate market.
This loan provides temporary funding for a property purchase while the borrower secures longer-term financing. In the New York real estate world, buyers use bridge loans to get a downpayment ready on a new property while they wait for the sale of their own home.
Buyers use bridge loans to help get the funds necessary to buy a home, but they aren’t long-term loans. Instead, they are short-term loans that you need to pay off with the sale of your property is sold or within a year.
Bridge loans can be attractive to specific buyers.
They carry high-interest rates and high fees. The terms are short, and it’s a notoriously expensive route, but it’s a short-term solution.
Using these loans only makes sense when looking to buy a property in a hot market. You know your home will sell and need to move ASAP, and they are pricey and somewhat risky. However, they can make sense if you need a quick real estate closing.
The concept is that you will usually use your current home’s equity as leverage. There are two options:
Some lenders may extend the terms if you can’t find a buyer within a year. However, you need to pay your mortgage and the bridge loan, which can lead to a loan default. If you aren’t confident your home will sell, you shouldn’t try to get a bridge loan, which could easily backfire.
Though all lenders will have their requirements, there are some general guidelines they follow:
If a bridge loan doesn’t make sense, there are other options to meet the same goal: