A bridge loan is often used in real estate transactions to provide cash flow during a transitional period, such as while moving from a current residence into a new home. Homeowners can use these short-term loans, which can help quickly put more cash in their pockets, to finance a new home or pay off an existing debt obligation. However, like any form of financing, bridge loans come with their own benefits and drawbacks.
A bridge loan is a form of short-term financing that can serve as a source of funding and capital until a person or company secures permanent financing or removes an existing debt obligation. Bridge loans (also known as swing loans) are typically short-term in nature, lasting on average from 6 months up to 1 year, and are often used in real estate transactions. They can be used as a means through which to finance the purchase of a new home before selling your existing residence.
As you might imagine, most home sellers would ideally prefer to wait until their house is under contract before placing an offer on a new one and using money from the sale of their existing property to help finance a new real estate acquisition. Should you be unable to offload your property and facilitate such a sales transaction, bridge financing can provide you with the funds needed to move forward on purchasing a new property regardless. Put simply, bridge loans give you access to additional money with which to purchase a piece of real estate by allowing you to tap into added funds, or any equity that you hold in your current home prior to its actual sale.
