Do you want to buy a house before your previous one sells? You have obtained a job transfer, and you want to buy in a competitive market. Then, consider getting a bridge loan. This is a short-term loan with a repayment period of between six months and three years. It is a great way of obtaining quick cash flow to bridge the gap between two financial transactions. Read on to identify bridge loan requirements and their pros and cons.
Requirements
Since bridge loans pose significant risks, lending institutions pose minimal obligations that borrowers must satisfy. Vital documents that you can be asked to present to secure home loans Arizona-based include a third-party appraisal, credit score, and proof of ownership. A good credit score raises your loan limit since it shows you are at low risk of default. Some lenders require proof of commitment for your old house from potential buyers. However, affordability and proof of income are not necessary. This is because the loan will be repaid upon the sale of your old house.
Pros and Cons
Pros
Unlike traditional loans, unmortgage-able property, such as ones with a short lease, can be used as collateral. Bridge loans are quick to secure, with a shorter loan maturity period, since they involve smaller amounts of money. Payment is over a short time. Thus, there is less incurred interest compared to long-term loans. Additionally, they have controlled interest rates due to the lower probability of fluctuating interest rates.
Cons
Bridge loans have higher interest rates as an incentive for lenders to provide financing on short notice. Other than premium rates, you will be charged additional fees for the home appraisal and underwriting process. If you have an existing mortgage, taking out a bridge loan raises the chances of default. This is because payment for the two may get mixed up, and this will attract additional charges.
Bridge loans offer an immediate cash flow that will ease your moving process. They have a short underwriting process. However, you will cover the additional charge for the third-party appraisal.