What are New Jersey Bridge Loans and how they work
When home buyers found a home they wanted to buy, chances are they looked closely at mortgage options. There are many choices for mortgages, including fixed rates and adjustable rates. There is also another type of loan called the bridging loan. Bridge loans finance when problems arise with the purchase of a house or property before the sale of the real estate buyer’s current property.
Many reputable financial companies offer New Jersey Bridge Loans. Here’s what to know about New Jersey bridge loans.
What is a New Jersey Bridge Loan?
New Jersey bridge loans are offered to meet temporary cash needs in the time between asking for cash and getting it.
Short-term loans are typically used by businesses while awaiting approval for their long-term financing. Consumers use short-term loans to buy real estate. A New Jersey bridge loan, being a short-term loan, is specifically used to “bridge the gap” when buying and selling a property (usually a house) simultaneously.
How New Jersey Bridge Loans Work
A few choices are there for New Jersey bridge loans. Mainly, the lending companies present these New Jersey temporary bridge loans in two ways to suit the needs of the borrower. These are:
New Jersey bridge loan borrowers can get the difference between an outstanding loan balance and up to 80% of the property value. The funds from the second mortgage are then applied as a down payment for the second property/house while the borrower keeps the first mortgage intact. This is so until the borrower is finally ready to repay all the loans when the property is sold.
- To merge the two mortgages into one
In this option, the borrower is allowed to take out a large loan up to 80% of the value of the property. The borrower pays off the balance of the first mortgage, then the second New Jersey bridge loan serves as the down payment for the second home.
The main reason many home or property buyers use New Jersey Bridge Loans is because it allows them to make a hassle-free offer for a new home. This means that they can buy a second property or a house without selling the one they already own. Rather, it is an important factor in the seller’s market where multiple buyers bid on the sale of the home. A home or property seller is more likely to choose a no-hassle offer because it means closing the deal is not dependent on the sale of the home or property.
New Jersey bridge loans also allow borrowers to put down just 20%. This is called the piggyback loan – a bridging loan used to avoid PMI or private mortgage insurance. PMI is required if a down payment of at least 20% has not been made and it also increases the mortgage payment. So, many homeowners opt for New Jersey bridge loans to avoid PMI.
How Much Can You Borrow From New Jersey Bridge Loans
The number of funds that can be borrowed for New Jersey bridge loans may vary depending on the terms of the lender. Typically, a bridge loan borrower can take up to 80% of a home’s value, and no more than that.
Average New Jersey Bridging Loan Fees and Costs
New Jersey bridging loans are certainly convenient options for getting through a rump, but that convenience doesn’t come for free. The catch is that the interest rates are higher than conventional bank loans. Interest rates can vary from lender to lender but are generally above 2%. This rate is higher compared to standard fixed rate loans.
The reason for this higher interest rate could be that New Jersey bridge lenders know the loan is short term. For them, this means that the money is not served by the loan in terms of long-term monthly payment collections. In order for the business to roll, they have to raise interest up front to make New Jersey bridge loans worth borrowing for homeowners.
Also note that closing costs may also be charged to New Jersey bridge loan borrowers, even with a typical mortgage. These fees may include appraisal fees, administration fees, notary services and sometimes escrow fees, title police fees and other items that vary by lender.
And then there are the assembly fees on the New Jersey bridge loans based on amount borrowed. About 1% of the total loan amount is paid with each point of the origination fee of a New Jersey bridge loan.
Bridge loan borrowers should remember that even though these fees may not seem high, they can only keep the New Jersey Bridge Loans for up to one year. They will probably pay these fees again in the short term. Essentially, these fees are money that the borrower cannot get back into their pockets.
A The New Jersey bridge loan can allow borrowers to buy a new home immediately, but it comes with costs — the closing costs mentioned above and the stress of having to make two mortgage payments.
New Jersey Bridging Loan Alternative
New Jersey bridge loans can be smart solutions for a borrower’s desire to buy a new home or property, but they should remember that the obligation to pay the first mortgage is still there. And so, for New Jersey bridge loans, the real costs are inherent. Here are some 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 obtain funds against the equity in their home. A borrower can be approved for a HELOC for a certain amount, but charge interest only for the amount used at any given time – much like how credit cards work. One thing to remember though is that a HELOC can be placed first before a home comes on the market. Most HELOC lenders will not lend to a home that is currently for sale.
- Take out a personal loan
With personal loans, the borrower receives a specific amount of money with a fixed interest rate and term. Although often used to settle credit card debt, personal loans can be an alternative to New Jersey bridge loans.
This option is not as appealing as the idea of wanting to buy a new house. But it may work for some who want to completely avoid the expense and stress of borrowing bridge loans in New Jersey.