A bridge loan, often a brief solution for financial gaps, helps buyers acquire their dream home before selling an old property. Typically short-term (up to one year), these high-interest loans provide fast funding until long-term financing is secured or the existing property sells.
Learn how this temporary aid works and where Arizonans can secure such assistance without getting caught off-guard by unexpected costs.
How a Bridge Loan Works
Despite the necessity of understanding bridge loans, you shouldn’t expect to dive deep into their nuances. These short-term solutions enable individuals or businesses to meet urgent financial needs. They often serve as a lifeline before securing permanent financing or eliminating an existing obligation.
Suppose you’re considering purchasing real estate in Arizona but waiting for your current home’s sale. This is where a bridge loan becomes relevant.
Using the equity from your present house towards the down payment on a new property purchase can buy you time and provide peace of mind while you await the sale. However, it is important to note that typically, these types of credit facilities are associated with higher interest rates compared to other options, such as a Home Equity Line of Credit (HELOC).
Lenders usually approve applications only if borrowers have excellent credit scores and low debt-to-income ratios.
Remember, every coin has two sides. Taking out loans to buy a new house without selling one’s first property can be beneficial; however, lenders typically only offer 80% of the combined value of both properties. This makes them suitable for those who either possess considerable equity in their original property or have considerable cash savings.
How to Qualify for a Bridge Loan in Arizona
Once you grasp what a bridge loan is, the next step involves understanding how to qualify. First, your financial standing comes into play when seeking this short-term financing option in Arizona. Lenders typically look for strong credit scores, usually above 680.
Next, they assess if you can handle simultaneous mortgage payments, as these loans necessitate balancing the costs of an existing home and a new one concurrently.
Also essential is substantial equity in your initial property (usually around 20%). The value helps lenders gauge possible returns from its sale after acquiring your dream house with the advance’s help.
Lastly, some lending institutions require debt-to-income ratio verification, aiming for under 43%. This is their way of ensuring that borrowers can shoulder extra load amidst current debts. Still, they provide exceptions based on demonstrated cash reserves or solid proof of a future income increase, such as an impending promotion confirmation letter.
So, do you now understand what a bridge loan is? Short-term financing covers your immediate needs before long-term plans settle in place. Blake Mortgage can guide you through it all. Is this the right choice for you? Get further insights from their team to make smart decisions about bridging finance today!
