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What should I know about bridge loans?

On Behalf of | Jul 17, 2023 | Real Estate Transactions |

It might seem like nothing will derail your real estate transaction, but then you learn that a loan you were counting on becomes delayed or even denied. A scenario like this is why certain options such as a bridge loan may be necessary.

A bridge loan can help people who need temporary financing to keep a real estate purchase from falling apart, though this option could pose some risks.

How bridge loans work

A bridge loan is basically short-term financing meant to cover a money gap until you secure permanent funding. To get a bridge loan, you will likely need to offer collateral. Some lenders take weeks to grant approval, but there are other financers who may provide one in a quicker span of time.

Uses for bridge loans

A bridge loan can help in different situations. You may want to buy a new house before selling your old one. A bridge loan can fund you while you wait to sell your old residence. Also, if you happen to own a company, you could use a bridge loan for a property purchase or even to help buy another business.

The possible drawbacks of bridge loans

It is important to note the possible problems involved with a bridge loan. You personally or your business could become saddled with substantial debt if your property purchase fails or there is a sharp economic downturn. Bridge loans also carry high-interest rates and various fees depending on the lender.

Bridge loans are not always the only option when you need temporary financing. Evaluating your choices carefully could be of benefit so you do not end up in poor financial shape.