When real estate buyers have found a place, they wanted to buy, chances are they have considered mortgage options closely. There are a lot of choices for mortgages including fixed-rate and adjustable rates. There is also another type of loan called the bridge loan. Bridge loans finance when problems arise in buying a home or property before the real estate buyer’s current property sells. New Jersey Bridge Loans –
A lot of reputable financial firms offer New Jersey bridge loans. Here is what one needs to learn about New Jersey bridge loans.
What a New Jersey Bridge Loan Is
New Jersey bridge loans are offered to meet the interim cash flow needs within the time between a cash demand and its obtainability.
Short-term loans are typically used by businesses while waiting for the approval of their long-term financing. Consumers use short-term loans in real estate purchases. A New Jersey bridge loan, being a short-term loan, is specifically utilized to “bridge the gap” when buying and selling a property (usually a home) simultaneously.
How New Jersey Bridge Loans Work
A couple of choices are there for New Jersey bridge loans. Mainly, there are two ways that lending firms present these temporary New Jersey bridge loans to meet the needs of the borrower. These are:
- To hold two loans
Borrowers of New Jersey bridge loans can get the difference between the balance of a current loan and up to 80% of the property’s value. The funds of the second mortgage are then applied as the down payment for the second property/home while the borrower keeps the first mortgage intact. This is so until the borrower is eventually ready to pay all the loans off when the property is sold.
- To fuse both mortgages into one
In this option, the borrower is allowed to take out one big loan for up to 80% of the property’s value. The borrower pays off the balance of the first mortgage and then the second New Jersey bridge loan serves as the down payment for the second home.
The greatest reason why a lot of home or property buyers resort to New Jersey bridge loans is that it allows them to make an offer that is contingency-free for a new home. This means to say they can buy a second property or home without selling their existing one. This is rather an important factor in the seller’s market where several buyers are bidding on the home sale. A home or property seller is more inclined to choose a contingency-free offer as this means the conclusion of the transaction does not depend on the house or property sale.
New Jersey bridge loans also allow borrowers to make a down payment of only 20%. This is known as the piggyback loan – a bridge loan used to avoid PMI or private mortgage insurances. The PMI is required if a down payment of at least 20% has not been made and it elevates the mortgage payment as well. Thus, a lot of homeowners opt for New Jersey bridge loans to avoid PMIs.
How Much Can Be Borrowed from it
The number of funds that can be borrowed for New Jersey bridge loans may vary depending on the lender’s terms. Usually, a bridge loan borrower can take up to 80% of a home’s value, and not more than that.
Average Fees and Costs
New Jersey bridge loans sure are handy options to get through a rump, but this convenience does not come free. The catch is that interest rates are higher than conventional bank loans. Interest rates can vary from one lender to another but they are usually higher than 2%. This rate is higher compared to standard, fixed-rate loans.
The reason for this higher interest rate could be that New Jersey bridge loan lenders know that the loan is a short-term one. For them, this means that money is not serviced by the loan in terms of monthly long-term payment collections. For the business to roll, they have to jack up the interest upfront to make the New Jersey bridge loans worth borrowing to homeowners.
Also, note that closing charges may also be asked from borrowers of New Jersey bridge loans same with a typical mortgage. These fees may include appraisal fees, administration fees, notary services, and sometimes escrow, title policy fees, and other items that vary per lender.
And then, there are the origination fees on the New Jersey bridge loans which are based on the borrowed amount. About 1% of the total loan amount is paid with each point of the origination fee of a New Jersey bridge loan.
Borrowers of bridge loans must remember that although those fees do not seem a lot, they only get to keep the New Jersey bridge loans for up to one year. They will likely be paying those fees again in the near term. Essentially, these charges are money that the borrower cannot recoup back into their pockets.
A New Jersey bridge loan may allow borrowers to buy a new home immediately but it comes with costs – the closing fees mentioned above and the stress of having to place two mortgage payments.
They can be smart solutions for a borrower’s desire to buy a new home or property but they must remember that the obligation to pay the first mortgage is still there. And so, for this true costs are inherent. Here are likely alternatives for these situations that are worth considering:
- A HELOC or home equity line of credit
This type of loan as opposed to a New Jersey bridge loan allows borrowers to get funds against the equity of their home. A borrower may be approved of a HELOC for a certain amount, but charged interest only for the amount that is used at any given time – much like how credit cards work. A thing to remember though is that a HELOC may be put first before a house is placed on the market. Most lenders of HELOC will not grant the loan to a currently on-sale home.
- Taking out a personal loan
With personal loans, the borrower is given a specific amount of money with a fixed interest rate and term. Although often used to patch up credit card debt, personal loans can be alternative to New Jersey bridge loans.
- Not loaning at all
This option is not as appealing as the thought of wanting to acquire a new home. But this may settle for some who want to altogether avoid the fees and stress of borrowing New Jersey bridge loans.