This then triggers additional activity: “Once you’re in your new home, the next step is going to be to sell your old one – which will have to happen within six months,” Richardson said. “It’s at that point you’ll pay off your old mortgage and the bridge loan.”
Bridge loans have grown in popularity in the commercial rea estate space as well, according to a report by Matthews Real Estate Investment Services released earlier this year. Borrowing fees more than doubling since late last year, rising interest rates and the possibility of a recession have combined in adding to the growing appeal of bridge loans, the report found.
“Following another Fed rate hike, the commercial real estate market is feeling the pressure of rising capital expenses and smaller credit amounts,” the report reads. “With these higher interest rates and tighter underwriting criteria, the demand for short-term and gap lending solutions is becoming quite popular.”
The dynamics of a bridge loan adds to the financial instrument’s appeal: “In addition to their growing popularity, bridge loans are quick and have a high probability of execution,” the study’s authors wrote. “These loans accommodate lenders and borrowers and can be used as leverage on higher-risk investment scenarios. Short-term solutions are a persistent theme in the current state of the market. Several borrowers are opting to extend their bridge loans considering today’s market conditions in hopes that cheaper options will be available soon.”
Reconsidering closing costs
That’s not the only advice Richardson has been giving her clients lately, also reminding them that the seller of a home sometimes is able to pay for closing costs. “The amount they can pay depends on your loan type, but most times they can pay most – if not all – the closing costs,” she said.
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