This is what a bridge loan is. That is, it bridges the time between when you really need money, usually to keep your house from going into foreclosure, and when you can get financing. The loan is then paid back with the money from the new source of funding.
Bridge loans have been used most often in the world of real estate financing. In this case, the loan is used to pay the mortgage on a new home while the old one is being sold or hasn't been put on the market yet.
There could be a chance that you might not want to miss. At this point, a bridge loan can help. Another common use is to stop a home from going into foreclosure.
Bridge loans are very helpful for people who need money quickly to close on a new home so that the sale of their current home can also go through. Most people take out a bridge loan because they need to meet this requirement. There are two kinds of this kind of loan: closed loans and open loans. Closed loans are for people whose contracts to sell their property have been signed and have gone through.
Since the sale has already taken place, the lending company or bank feels safer. Before processing, you have to pay a set-up fee, and the interest on the loan is paid all at once when the money from selling the property comes in. People who haven't sold their property yet or whose sale contract is still being worked out can get open loans.
If you have a good track record with a lender, you might be able to get an open loan, but if not, it will be hard.
Because the lender is taking on more risk, the rates for an open loan are higher than those for a closed loan. This loan can get complicated because the lender may ask the borrower to put up his new home as collateral if he doesn't have anything else to offer.
Bridge financing is becoming less popular as an alternative way to get money because banks are becoming less willing to take on so much risk. The terms of the loan don't fit with what most banks look for in loans, and it might be hard to explain this to investors and government officials.
Even though traditional lenders are moving away from bridge loans, there are still a lot of people who would be willing to give you one.
When you apply for a bridge loan, the lender will usually ask for a copy of the mortgage offer on the new property, the terms and details of the agreement, and more proof that your current home is still on the market (whether or not it is really up for sale).
The borrower has to agree to a payment plan and list options in case the house doesn't sell. Don't think that "crying your way to the bank" will work. You will have to pay back your bridge loan even if the market crashes.
