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How Does A Bridge Loan Work ?
In recent years, bridge loans have gained in popularity because of the growth of the mortgage refinance market. |
A bridge loan serves the purpose of getting financing and credit for a homeowner who purchases another home before he sells his existing home. The expectation is that the homeowner would repay the bridge loan with the proceeds from the sale of the existing home as and when it is sold.In the meantime, he or she can have access to easy credit courtesy the bridge loan. This is a popular means of credit for homeowners and hence is the preferred option when they decide to buy a new house without selling the existing house. Hence the loan acts as a “bridge” between two types of financing.
There is no one standard on how bridge loans work. Typically, lenders give away bridge loans on what they perceive makes sense rather than have a set of rules and regulations that adhere to the FICO guidelines. In most cases, the lenders give away bridge loans because of the fact that the borrowers have an existing mortgage and secondly, the homeowners tend to sell the first house quickly and within the duration that the bridge loan is expected to be repaid. The rates for bridge loans vary among lenders and usually the interest rate is around 8-10 percent along with a thousand or so dollars in administrative and setup fees. As outlined above, bridge loans have become quite popular among homeowners wishing to avail of short term financing without having to go through the hassle of longer term loans.
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