While real estate is often a significant investment, it also often requires you to move quickly to obtain great properties. Moving quickly, however, can be difficult, especially if you’re working as an investor and you have funds tied up in other properties.
To move on strong opportunities as soon as they present themselves—and with cash offers that can set you apart from the competition—having convenient, fast access to short-term funding as opposed to a traditional loan can be a game-changer.
A bridge loan can present that opportunity.
What is a Bridge Loan?
A bridge loan—also known as a swing loan—is a short-term financing option that is meant to serve as a source of funds until the buyer either secures permanent financing or eliminates some specific existing debt. The debt repayment period typically lasts between six months to a year.
Conventional buyers use bridge loans to purchase a new home before selling their existing home. While some investors may use a bridge loan for something similar when offloading one property in favor of another, they may also use a bridge loan to pay off an existing property or other debt obligations to receive funding for another. Or they may use it to help with a down payment.
When Are Bridge Loans Used?
Bridge loans are most often used in real estate by sellers who need to relocate before they’re able to sell their home. They’re also regularly used by real estate investors for a variety of reasons. Investors often use short-term funding from bridge loans to do the following:
- Pay off or reduce the debt load of an existing property to invest in a second property
- Access capital to either purchase a new property, either purchasing it in full or with a down payment
- Use a bridge loan to purchase an investment property in addition to their existing mortgage loan that will yield significant profit quickly
How Does a Bridge Loan Work?
Knowing how a bridge loan works is…