Bridge Loan
Definition:
A Bridge Loan is a short-term loan used to bridge the gap between the purchase of one property and the sale or refinancing of another. These loans are often used by homeowners who need funds to buy a new home before selling their current one, or by real estate investors to finance properties quickly while they arrange for longer-term financing.
🔍 Did You Know?
Bridge loans typically come with higher interest rates and shorter repayment terms than traditional mortgages, as they are meant to be temporary solutions.
Examples:
Example 1:
A homeowner takes out a bridge loan to buy a new home while waiting for the sale of their current property to close. Once their current home sells, they use the proceeds to pay off the bridge loan.
Example 2:
A real estate investor uses a bridge loan to quickly purchase a distressed property at auction, planning to refinance with a traditional mortgage after making repairs and increasing the property’s value.
Why It’s Important:
Bridge loans provide flexibility for buyers and investors who need short-term financing to act quickly in the real estate market. However, they come with higher costs and risks, so they should be used carefully.
Who Should Care:
- Homeowners needing short-term financing between buying and selling homes.
- Real estate investors who need fast access to capital.
- Lenders offering short-term financing options.
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