What is a Bridge Loan to Buy a Home in NYC?

Buying a home is not something one would do more often until and unless one is in the real estate business. For the majority out there, it’s once in a lifetime event. The dream becomes even more daunting when you happen to live in a metropolitan city such as New York City.

Without a doubt, the city is expensive and the real estate market is competitive. You have to have good savings or handsome monthly income to afford a home in NYC. If by sheer hard work, you already own a home and now want to upgrade your lifestyle or move into another place, what would you do when you want to buy a new house with the capital your current home possess?  The NYC Bridge Loan is the answer.

Selling a home is a tough assignment as it involves a lot of technicalities. In such a case, you cannot buy a new home until you sell the previous one. This is the gap Bridge Loan may fill in by giving the person the luxury of buying a new home and settling the loan when the other property gets sold.

Let us learn about the Bridge Loan more:

What is a Bridge Loan?

As the name illustrates, it is a kind of loan which bridges the gap between selling and purchasing. A short-term loan is offered against the property you own to pay for the property you aim to buy for the period until the property is sold. You may use the loan for the transaction of the new property.

It is a huge facility as it happens with property owners who want to buy a new property but are unable to sell the owned property at the time funds required. So, the Bridge Loan would let the person buy some time while not losing the property he wants to buy.

Conventionally, the Bridge Loan goes as high as 18% of the net value of both properties. However, one may customize the loan according to personal requirements.

It is less likely that you have heard of this kind of loan before. Yes, it is rare, as it is not welcomed much by the sellers, especially in a competitive market such as NYC. The offer which is not dependent on the fortune of other property is more convincing anywhere let alone NYC.

However, the Bridge Loan is certainly a charming option for the buyers who may have cash in hand anytime and bid for the property even the property is not sold yet.

The criteria for the qualification of a bridge loan are not as convenient as the conventional loan. It involves risk as for some time one has to run two mortgages in parallel.

Co-op Owners Might Have a Tough Time:

For the people who own condos, it is a lot easier to get the Bridge Loan while for co-op owners the task is daunting. As co-op owners do not own property directly rather own shares in a corporation that owns the property, the board of directors generally do not like the idea of such financing and decline the offer.

The Flip Side of the Bridge Loan:

Bridge loans are offered for the short term and not welcomed much, that’s why tend to be offered at higher rates. In other words, it is not encouraged to have a Bridge Loan. And this is how lenders counter the applicants.

Therefore, buyers must do a thorough calculation of the total cost at a higher rate and see if it is effective or not?

Apart from higher rates, another downside of the bridge loan is that you have to carry two mortgages for the period until your property is sold. If you think you can manage two mortgages, you may go with this option. Or you may also settle the second mortgage from a budget set for the purchase of a new house.

Unlike a conventional loan, a bridge loan is not offered by every bank. This is also a limitation as you would be having a tough time finding and convincing a bank for the bridge loan.

The Brighter Side of Bridge Loan:

Apart from the financial discussion, selling a home and moving into a short term rental until one can buy a new home does not seem convincing. Buying a new home may take more time than one might have envisioned and that’s more trouble. One remains under pressure and pressed to purchase a new home. That would let you compromise on the quality. Meanwhile, you will be paying rent which is also a financial loss.

So for buyers, it seems a good option that you sell a property once you have got into your new home. If you can somehow get the Bridge Loan granted, you should exploit this option.

If we look up the trends, it is observed that the acceptability of Bridge Loan is increasing as sellers are accepting offers with loan contingencies. From the current scenario, it seems it would be more common shortly.

Final Thoughts:

You must not take the Bridge Loan without doing calculations that if the overall cost suits you or not. Now you know about the Bridge Loan, take a wise decision.

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