Of course, it’s not always necessary to seek out a bridge loan if you need timely capital. After all, many other alternative forms of real estate financing can help you make ends meet. Below, we’ll discuss some examples.
Home Equity Loans
Home equity loans are a popular alternative to bridge loans. Under this form of financing, which is secured using your current home as collateral, you can borrow against your home’s equity. Home equity loans are typically long-term (ranging up to 20 years) and offer comparable interest rates to bridge loans.
A home equity loan is often more affordable than a bridge loan, but this option still requires you to carry two mortgages if you buy a new home and don’t sell quickly. You might consider this option if you're planning on keeping the residence you're leaving for an extended period.
Home Equity Line Of Credit (HELOC)
A home equity line of credit (HELOC) takes the form of a second mortgage. Compared to a bridge loan, a HELOC offers a better interest rate, lower closing costs and added time to repay borrowed sums. You can use any amount borrowed with a HELOC to make home improvements and other upgrades. Note that some HELOCs may come with prepayment penalties.
80-10-10 Loan
An 80-10-10 loan is a financing option that requires less than a 20% down payment and allows you to avoid private mortgage insurance (PMI). Under the terms of an 80-10-10 loan, you pay 10% down then obtain two mortgages: one for 80% of the new home’s asking price, and a second for the remaining 10%. After selling your current home, you can use any funds left over – after paying off any outstanding balances – to pay off the 10% second mortgage.
Personal Loan
Finally, if you have a strong credit history, solid employment, a good payment history and a low debt-to-income ratio, you might consider a personal loan. This kind of loan can be unsecured or secured with a personal asset you offer up to the lender as collateral if you fail to make on-time payments. A personal loan’s terms and conditions will vary by lender.
