A bridge loan is a type of home loan with one of the smallest, quickest, and shortest terms. Bridge loans aren't as common as loans that use the home as collateral, like first and second mortgages, refinances, home equity loans, and debt consolidation loans.
A bridge homeowner loan is short-term and is meant to help a homeowner get through a short-term cash crunch. So, it's called a "bridge loan." The most common reason for a bridge loan for a homeowner is when they have bought a new home but haven't sold their old one yet. Most of the time, two people own the same house because one of them moved for a job.
Some people who want to sell their home will rent an apartment, condo, townhouse, mobile home, or single-family home for a short time until their home sells. Some people, on the other hand, think that the bridge homeowner loans are better because they are more convenient, save money, or keep their kids from having to go to a new school for the third time.
Short-term rentals can cost more than the interest on short-term bridge loans for homeowners.
There are a lot of different rates and terms for bridge loans, and the fees to get the loan can be quite high. Most bridge loans are written for six months, and the house that the borrower is trying to sell is used as collateral.
The problem with these bridge loans, besides the fact that they could be expensive, is that homes don't always sell in six months, and markets and market values can change. Think about the difference in the market value of a home in Allentown, PA, which used to be a thriving mining town with lots of jobs and a high demand for homes.
That same piece of property may be worth only a tenth of what it was 40 or 50 years ago. This kind of thing can happen overnight when plants close and industries struggle to stay in business.
Who would have thought that 20,000 IBM workers would leave the Triple Cities (Binghamton, Endicott, and Johnson City) area of upstate New York when the original plant closed, or that Knight Ridder Newspapers would go out of business?
Look elsewhere for money before you think about homeowner bridge loans. The best thing for your finances is, of course, not to own two homes in the first place. If you can't stay in your current home until it sells, sell your boat, your second or third car, or use your 401(k) to get a loan (k).
You could also leave your family in your current home, move into a cheap rental in your new location, and either fly or drive home every other weekend.
There are a lot of smart, good deals out there for homeowner loans that will save you a lot of money and might even make you some. Loans to combine debts are an example of the second type. Bridge loans, on the other hand, are rarely the best way to get money and are often one of the worst.
