Bridge loans are temporary, short-term loans that “bridge” or close the gaps that exist between the sales prices of new properties and new mortgages of a home when the buyers’ homes have yet to be sold. The existing homes of buyers are what bridge loans are secured to, with the funds being utilized for down payments on the new home.
With bridge loans, lenders often lack high credit standards and detailed debt-to-income ratios. The general underwriting approach is predicated on logic and simple common sense. However, standards do come into play in regards to the long-term funding acquired for the purchase of the new property.
Sometimes lenders who present conforming loans prohibit payments via bridge loans for qualification reasons. Thus, borrowers are qualified to purchase their new properties by combining their current loan with their new mortgage payments. Lenders often use two-payment qualification due to many buyers possessing current first mortgages on their present homes, as well buyers are highly prone to closing their new-home purchases prior to their existing properties being sold. Plus, albeit for only a short amount of time, the buyer will be the owner of two homes.
When the new mortgage for a buyer is via a conforming loan, lenders are likely to be more lenient when it comes to accepting greater debt-to-income ratios, as they can process the loan through a pre-programmed underwriting curriculum. When the new mortgage for a buyer is via a jumbo loan, lenders often confine buyers to a debt-to-income ratio of 50%.
As mentioned earlier, bridge loans are highly beneficial for buyers. Through this type of loan program, buyers can put their home on the market without any restrictions or constraints, immediately. Some bridge loans may not demand monthly installments be made for several months.
Also, should a buyer make a contingent offer to purchase and the seller releases a notice to perform, the buyer is allowed to discard the contingency to sell and move the purchasing process forward.
The rates for bridge loans do vary, and it is advised to buyers to check with their lenders. Various fees such as notary, administration, recording, title policy, appraisal and escrow are common with bridge loans. Also, a loan origination fee may be attached to a bridge loan, dependent upon the total amount of the loan.
Failla Funding has the experience and savvy to help you obtain a great bridge loan. No matter if you’re in Brooklyn, Long Island, Manhattan, Queens or the Bronx, call us today at (718) 966-6760 or (917) 294-1506!