Selling a home is rarely easy, and for some buyers and sellers it can be a genuine knuckle-biting experience. This is especially true about the financial aspect of home buying, which can turn even seasoned pros into nervous wrecks.
Fortunately, there are financial products that can help, and a California bridge loan can be a genuine life saver. These loans allow sellers to access their home equity before they sell, so that they don’t have to make a contingent offer on the home they wish to buy once the sales transaction is complete.
A California bridge loan can also give these same sellers more leverage and buying power. They help sellers compete in scenarios where the home they’re trying to buy after the sale is drawing multiple offers from other buyers who have funds at the ready.
The general terms of bridge loans in California are relatively clear. To get a bridge loan, you need to have at least 20 percent worth of equity built up in your current home, and the length of the loan is usually 6-12 months. Also, bridge loans tend to have fairly high interest rates, so they’re best applied in those areas where homes tend to sell fairly quickly.
Nearly all bridge loans are used in one of two ways. One is to pay off a current mortgage, which then allows sellers to use any excess funds after that payment toward a new down payment. A California bridge loan can also be used as a second mortgage, which then becomes the down payment on the new house.
The best use of a bridge loan depends on the prices of the houses being bought and sold, the financial situation of the sellers, and the situation regarding the home they wish to buy.
The advantages and disadvantages of a bridge loan are fairly well-defined as well. They allow sellers to make an offer without having to use a sales contingency, and the payments can be put off until the sale goes through or made interest-only.
The down side of a bridge loan is that the rates tend to be high, and the cost of an appraisal may become part of the closing cost formula. It also may leave sellers owning two houses for a brief period of time, and there’s also the matter of the aforementioned 20 percent equity stake that’s required.
Despite these tradeoffs, bridge loans … Read the rest