How a Residential Bridge Loan Can Help You Buy Your Next House in California
Updated: Mar 27
More than 5.6 million homes were sold in 2020 alone. Since then, many more homes have been sold and many more people have bought them up. The current problem that many people have is that they don't have nearly enough money to buy a house since houses have become so expensive.
Fortunately, a residential bridge loan can fix this problem. But what are residential bridge loans in California, and what can they do for you? More importantly, how can they help you buy your next home in California?
Keep reading and learn more about bridge loans and the benefits of a residential bridge loan for buying a house.
What You Need To Know About Residential Bridge Loan Options
What is a residential bridge loan? How can you find the right bridge loan lenders near me and what are your bridge loan owner-occupied options? As the name suggests, a bridge loan acts as a sort of bridge as you transition from your old house to your new one.
This is important because this transition can often be more complicated than you might expect. There are many home loan options that you can use to help finance a new home, but a bridge loan tends to be one of the most effective and useful. This is true for a variety of reasons.
For one, a bridge loan will be ideal for preventing you from making what is known as a contingent offer on whatever house you intend to buy. If you don't know what a contingent offer is, it all has to do with certain contracts that are involved when buying and selling houses. For example, a contingent offer usually has to do with protecting the best interest of the buyer rather than the seller.
Certain regulations and standards have to be met to hold up this contingent offer. If this does not happen, then the buyer has the opportunity to change their mind about the purchase and back out of the deal. This offer mainly functions to ensure that the buyer does not lose any money when purchasing a home.
However, contingent offers can sometimes be a lot of trouble to deal with, especially for sellers. By not making a contingent offer on the house you want by getting a bridge loan for yourself, you can completely avoid this problem before it even happens. That way, you won't have to be so nervous about selling your house when there is the possibility that the buyer may back out.
This loan can also help you when it's time to buy a new house. The convenient thing about this type of loan is that it works much in the same way as your average home mortgage. For that reason, you will also need around the same credit to get a bridge loan as you would need to get a mortgage.
This means that your credit should be in relatively good shape. It may be difficult for you to get this loan if your credit is not doing so great. Besides that, you will also need to consider your debt-to-income ratio as this is an important requirement when applying for a bridge loan.
But how exactly do bridge loans work once you get one?
Understanding How Bridge Loans Work
One of the first things you will need to think about when getting a bridge loan is your LTV, also known as your loan-to-value ratio. What is this ratio and what does it mean, you might ask? It all has to do with how much your loan is worth compared to how much your house is worth.
If your LTV is 80% or higher, you'll certainly be pushing your luck with bridge loan lenders. This is because the majority of these lenders won't want to work with someone with such a high LTV ratio. On the other hand, if your LTV ratio is on the lower side, you shouldn't have too much trouble getting a bridge loan.
If you want to get a bridge loan, you should have around 20% equity on your home or more. People use bridge loans in different ways and for that reason, this type of loan can be quite versatile and useful.
For example, some people may decide to pay off their current mortgage using a bridge loan. Once they do that, they may use whatever money is left over from the bridge loan to use on the down payment for their new home. On the other hand, if you don't have a mortgage to pay off, you can always use a bridge loan to put it directly towards buying a new house, specifically the down payment.
What You Need to Know
This, of course, will make the entire process of moving out of your old house and into a new one much easier. You won't have to worry about your old mortgage hanging over your head and you won't have to worry about not being able to afford a new house either. A bridge loan will smooth out any bumps in the road in this transitional phase in your life as you pack up and move into a new home.
As with any ordinary mortgage, you will have to pay off your bridge loan at some point in the future.
Keep in mind, however, that you should have plenty of time to pay off your bridge loan. You will also have plenty of time to use this loan to pay for the down payment on your new home, get settled in, and so on. Doing this can reduce plenty of financial stress so that you can focus more on the process of moving into your new home.
But what about the pros and cons of getting a bridge loan?
The Many Pros of Bridge Loans
While you have seen that bridge loans come with a variety of benefits, you also have to consider some of the downsides that you may need to face. First, however, let's take a look at some of the pros. Perhaps the biggest benefit of this loan is that you can completely avoid sale contingencies when making an offer on the house you intend to buy.
Besides that, until you sell your current house, the payments you make on the bridge loan will mainly consist of interest payments. This will make managing a bridge loan quite easy and efficient.
What to Know
Once you get your bridge loan, you'll find that it will be able to help you in a wide variety of ways. Many people find that as soon as they get one, it is like a large weight being lifted from their shoulders. This is because a bridge loan can allow a person to make certain financial decisions that they wouldn't have been able to make before.
This, of course, is very important if you're thinking about getting a new residential property. Houses these days can be quite expensive and many residential options are far out of the reach of many people. This is especially the case in California which is a state that is known for having some of the most expensive pieces of property in the entire country.
As a result, many people have to settle for properties that they don't really care for.
This, of course, is not an ideal scenario. If you find a property that you really love, you should be able to get it. Fortunately, a simple bridge loan can allow that dream to become a reality.
All About Residential Bridge Loan Options
A residential bridge loan might be just the thing you need if you want to buy a new house.
To learn more about how it works, click here.