Arizona Bridge Loans: Do the Benefits Outweigh the Risks?
Arizona bridge loans are gaining in popularity as a short term loan options. Like any loan, there are certain inherent risks and benefits. Knowing how to analyze your loan will help you decide if it is a good option for you.
A bridge loan can be the
missing piece of your home
Arizona bridge loans are short term loans used when a borrower who has not sold his current home wants to purchase a new home. These loans work to bridge the gap when the borrower plans to use proceeds from the original home as the down payment on his new home. The bridge loan is secured to the original home, the one that’s on the market. The funds from that loan are used as the down payment for the mortgage on the new home.
There are no strict guidelines when it comes to Arizona bridge loans so credit score and debt to income ratio are not usually factors that will automatically disqualify you. This is good news for borrowers with less than stellar credit or who may have a high debt to income ratio once they purchase their new home. Instead, bridge loans are based on a few different factors, including how likely it is that you will sell your current home quickly, and whether or not you can make both mortgage payments for a short time if it becomes necessary. If you default on a bridge loan, the lender has recourse to get their money back using the property you have on the market because it is the one that secured the loan.
There are several risks that are associated with bridge loans. Like any loan, they are not entirely safe and can lead to some negative consequences if you don’t fully evaluate their terms, conditions, and rates. First and foremost, Arizona bridge loanshave fees associated with them. Generally there is an administration fee of about $750, an appraisal feel (for your current home) of about $350. Once notary fees, wire fees, origination fees, and any other lender fees are added in, a bridge loan will end up costing the borrower about $2,000 to obtain. This may seem like a lot, but if is the difference between buying your dream home or losing out, many borrowers find that the fees are more than worth it. Especially since it is much easier to come up with two grand for a bridge loan than it is to find $20,000 for a down payment if your current home has not sold.
Another risk to Arizona bridge loans is high interest rates. Most short term loans are inherently more risky for the lender. You will pay extra for that risk meaning you will have a higher interest rate. Interest rates fluctuate based on the prime rate and how much you need to borrow, but typically speaking the interest rate on bridge loans is usually higher than a traditional home mortgage. You can avoid paying high interest rates by selling your home quickly and paying back the loan as soon as possible.
Along with the risks, there are also several benefits to Arizona bridge loans. Many loans offer terms that allow you to skip the first few months of payments. If you can sell your home during this time, you can avoid paying any interest at all on the loan. In addition, you can use extra proceeds from the loan to do remodel work on your new home and put your own personal stamp on it.
Also, bridge loans allow you to put your current home on the market quickly and without restrictions. Potential buyers will not need to schedule showings because the home will be vacant. A vacant home is easier to show and usually sells more quickly due to ease of access. You can also look into staging your home to give you an extra advantage. And without your family living there, it will be easier for new buyers to picture themselves living in the home.
Bridge loans are also usually fairly easy to qualify for and have flexible underwriting guidelines. This makes them an ideal loan for someone who needs cash for their new home fast.
Call an Arizona mortgage broker or private lender to get started on a bridge loan today.
Once you are settled in your new home, you will be happy that you chose to use Arizona bridge loans to help you get cash fast and with little hassle.
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027