New Custom Home: Does a Bridge Loan Make Sense?

As a potential homebuyer, you're probably thinking about mortgage options to finance the custom new home you've been planning to buy. While there is a myriad of mortgage options to choose from, choosing the right one may seem overwhelming. You need to be creditworthy and devoid of bad debts for starters to be eligible for any loan.

Bridge Loan

Taking a close look at your finances is one of the most critical factors that can help you get the mortgage that best suits your needs. Aside from the standard mortgage options out there, there's a short-term loan option called bridge loans that can provide immediate cash for you that may be helpful in many situations.

What is a Bridge Loan?

As the name suggests, bridge loans span the gap between immediate cash flow requirements while waiting for long-term financing. Homebuyers rely on bridge loans to meet the initial payment obligations in purchasing a new home while searching for long-term funding. Long-term financing is usually harder to secure.

Unlike traditional loans, bridge loans have a fast application, approval, and funding process. But you will be paying that convenience off with relatively high-interest rates in short-term duration ranging from one to three years. They also have large origination fees. These fees make bridge loans quite unattractive at face value, but most homebuyers choose them for immediate financing of initial payment obligations until they secure a long-term loan.

How Does It Work?

Bridge loans work by providing homeowners the short-term capital to pay the downpayment for a new home. Most homebuyers plan on rolling the profit from the resale of their existing house into the purchase of their new home, but sometimes there is a delay, and some capital is needed to "bridge" the gap.

As a homebuyer in a competitive seller's market, buyers with ready capital have an advantage over those who don't. Having to rely on a future transaction to secure financing for your new home's purchase turns off many sellers.

Without a steady cash flow or enough savings, any purchase offer from you will be quickly rejected because you don't have your financing lined up. Bridge loans are also used to renovate and sell a property in a shorter period or retrieve properties from foreclosure. Making them a very flexible short-term loan option.

Does a Bridge Loan Make Sense?

Most homebuyers turn to bridge loans because it gives them the financial capacity to offer a contingency free offer to the seller. Sellers are more likely to choose an offer without a contingency because they aren't relying on your current house selling to pay them.

The ability of bridge loans to provide homebuyers with immediate short-term capital allows them to meet any current payment obligations for their custom new home. A bridge loan is a very convenient and flexible loan option while you're waiting for long-term financing, albeit at relatively high-interest rates.

Homebuyers get around this by securing a low interest, long-term financing mortgage loan in the future. Bridge loans are easy to pay as long as you have the patience and collateral. In summary, bridge loans make sense for various convenient reasons; being the most notable is having the luxury of securing immediate capital to purchase a new home where many buyers might be bidding. That dream custom new home might slip away from your hands without bridge loans.

Contact Grayson Homes

If you are ready to start planning your custom new home, contact Grayson Homes. Our team will help step you through the process—call 919-578-6222 for more information.