Late on Mortgage Payments? How a Bridge Loan Can Help

If you own your home and are looking to sell the home you are in and purchase a new home, you may run into trouble if the timing doesn’t line up “just right”. It happens more often than not – you close on the second home before the one you are living in is sold. Suddenly, you are juggling two properties and two mortgages.

Though this is usually a temporary situation, it can make for some tense times ahead.

What you risk if you are late on your mortgage payments

A mortgage is one of the biggest financial commitments you can make. The amount of money borrowed and the length of time needed to pay it back is considerable. Your lender is banking on your ability to pay and, if you don’t, they have a considerable asset (the home) as a guarantee.

If you miss too many payments, you risk foreclosure and potentially put yourself in a situation where it will take a lot of time to build your credit back up again. After that, it will be less economical for you to borrow because the rates you will be offered will be very high. Even if you have maintained impeccable credit up until now, you will face a series of challenges to get everything back on track.

At the very least, your inability to make your mortgage payments will have a negative impact on your credit score. At worst, you could lose both properties, simply because you didn’t have that little bit of extra financial cushion you needed to bridge the gap.

This is where a bridge loan can help.

How a bridge loan can protect you

If you have a home equity line of credit or enough equity in the first home that you can secure a loan, you can use those funds to purchase the new property. However, if you have not yet sold your first home, you might be carrying both properties until it does.

Having a contingency plan that will cover you in any circumstance will not only allow you to pursue your new real estate opportunity, it will help to protect your credit and keep you secure. Additionally, it will allow you sufficient time to secure fair market value for the property you are selling.

The benefits of a bridge loan include:

• You can put your home on the market immediately
• You can purchase your new home without any restrictions
• You can remove any contingency clauses and move forward with your plans
• You are covered for any expenses in the interim before your first home sells
• Fast closing, usually less than 10 days
• If you have good credit, you may not have to make a down payment
• Borrow based on the equity in your current home

One of the disadvantages of a bridge loan is that they typically cost more. However, once you weigh the risks of not having this protection, many will conclude that it is the best possible solution.

If you would like to learn more about how a bridge loan can help you realize your real estate dreams, reach out today.