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The funds received through this type of loan are used to for making the down payment on the new home. Usually the loan is paid back once the older property is sold.
There are two ways of obtaining money for down payment when the home buyer is planning a second home. One way is to use the home equity that is built up on the existing home as a collateral and obtain a mortgage loan. These types of loans are less expensive and carry lower interest rates. Another method is to opt for a bridge loan. These loans are a popular and preferred means of obtaining money, particularly when the real estate property is up for a sale. In fact, many lenders do not agree to provide a loan when the existing home is put up for a sale. However, bridge loans are typically more expensive than a conventional financing option because of higher interest rates and other associated costs.
In most cases, FICO scores are never considered while approving a bridge loan application. These loans can be obtained quickly with relatively little documentation work and less processing time. These loans also tend to allow a lower loan-to-value ratio. Interest rates on these loans are usually between 12 and 15 percent and the buyer’s existing home is used as collateral.
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