What Is a Bridge Loan in Real Estate?

Bridge loans are loans given for a short period of time granted by a bank or an agency against the equity of the property you are selling. This loan would help you to bridge the gap between the period of realization of the sales proceeds and paying money to buy a new home. So, you can use the loan to fulfill your needs in the intermediate period when the sale of your home hasn’t given you cash to buy the new house. Thus, it can be understood as an interim kind of financial arrangement.

For example, if you are selling your home and thinking of buying a new home, but after closing your first home, you need a place to stay. The bridge loan will be given to you as a short term loan to buy your new home so you can move in even before the payment is realized on the sale of the first home. This loan acts as a bridge between the realization of sales proceeds and paying of money for a new home.

Conditions for Getting a Bridge Loan

The essential condition for getting this type of loan is that you should have a buyer for your original home or property. The buyer of your original home or property should give an undertaking by way of a written contract that he would pay for the home you have put up for sale. If you show this undertaking or written contract to a bank or an agency that specializes in giving bridge loans, the bank or the agency will gladly issue you a loan to tide over the time until you receive the final payment from the buyer. This bridge loan can then be used to buy a new home where you can live without worrying about a place to live in till you get the payment.

Bridge Loans Are Short Term Loans

A bridge Loan may be a commercial bridge loan or loan for the purchase of a house or apartment or land. Since it is granted as short term financing to fulfill the gap between the time your property is sold and you receive the money, this loan is also called by other names like gap financing or interim financing. These loans are secured against either the old home or inventory or other forms of collateral. These loans are more costly as compared to normal loans. They charge a higher rate of interest as against conventional loans, but they have an advantage as they can be granted without much formality by way of documentation.

A part of the bridge loan proceeds can be used to pay for any mortgage against your original home or real estate property so that it can then be easily sold. The other part can be used to make advance payments on your new property or home. This helps you to get good deals and secure a long term financial opportunity like a new house or new real estate property by getting short term financing. Bridge loans are a flexible form of financing, helping you achieve your goals.