Arizona Hard Money Lenders Offer the Option for a Bridge Loan

Sometimes a person faces a Catch-22 situation when ready to buy real estate but not yet having sold some property that would finance this purchase. An intriguing opportunity available from Arizona hard money lenders is known as a bridge loan. It bridges the gap when the planned financing has not yet become available and allows the person to make this purchase. For example, the individual may not be able to get a mortgage on a new home while still owing substantial money on the other house.

Bridge loans are short-term instruments compared with mortgages. They can be set up for only a few weeks or up to a few years, although residential real estate bridge loans usually are set up for no more than six months. A real estate buyer might only need the shortest-term option if he or she knows someone will be buying the existing home and will have the money at the end of the month. Paying the money back as soon as possible is advisable because these loans have somewhat higher interest rates than standard mortgages do, since they are considered somewhat higher-risk instruments. It’s a smart idea for potential borrowers to shop around for the best rates and terms.

One reason for the higher risk is that creditworthiness isn’t as significant a factor as it is with traditional loans. Instead, the hard money lender looks at aspects such as the prospective borrower’s plan to pay back the cash. As with traditional mortgages, lenders want verification that the individual can afford the payments. That’s particularly important, since the typical borrower will now be making two mortgage payments. Because the property the person already owns will be used as collateral for the loan, the lender wants verification of the condition of the property.

The prospective borrower may hear advice to avoid getting this type of loan not only because of the interest rate but because there’s always a risk the real estate he or she already owns won’t sell. Sometimes, however, the individual has to move and needs a new place to live. Renting may seem foolish when buying is an option. Each person must carefully consider all aspects of this financial strategy before making a decision.