If you have a mortgage and are also thinking of buying a house, you’re probably aware that getting a mortgage is no easy task. Most lenders require that you first put up enough cash to cover the purchase price of the home in question.

This is where a few down payment assistance programs can come in handy. However, as with any form of financial assistance, not all bridge loans are created equal and this guide will help you understand what a bridge loan is and how they fit into the lending landscape.

How Do Bridging Loans Work?

A Bridging loan is a loan that combines your down payment and the value of your home wherein you then borrow the full amount against the property, enabling you to make monthly payments until the loan is fully paid.

You keep the equity you’ve built in your home while moving in between homes, possibly enabling you to stay in the house you’ve always dreamed of owning. A bridge loan is typically used by homebuyers who don’t have enough saved for a conventional down payment.

If you have bad credit or no credit history, a bank or mortgage lender may not be willing to lend you the total amount of the house and a bridging loan can let you purchase a home with just a down payment and an affordable monthly payment.

When Should You Consider Taking Out a Bridging Loan?

A Bridging loan is a great option for homebuyers who don’t want to take full ownership of a house but still want to own a home. If you don’t have enough saved for a down payment, a bridge loan can help you get the property you want.

Bridging loans are also a good option if you need to move frequently and can’t keep track of changing loan terms or requirements. With a bridge loan, you only have to know your monthly payment, enabling you to make informed decisions.

The Pros of Using a Bridging Loan

Now that you know what a bridging loan is and how it works, let’s take a closer look at the pros:

A lower monthly payment: Unlike a mortgage, a bridge loan has a lower monthly payment because it’s borrowed against the value of your home and your monthly payment is based on the value of your home, which means it’s more likely to stay steady over time.

1. Convenient: With a bridge loan, you only have to deal with one lender. As opposed to a mix of mortgage and equity sources, you can easily apply for a bridging loan directly through your bank.

2. Easier to obtain: A bridging loan is easier to obtain since it doesn’t need to be approved by a lender. You just have to show a satisfactory source of funds and a power of attorney or a notarized property deed.

3. Less chance of foreclosure: Since a bridge loan is only borrowed against the value of your home, you’re less likely to run into foreclosure. When making a full payment, your monthly payment is a lot less than the full price of the house.

4. You can afford it: Unlike a mortgage, a bridge loan doesn’t require a large down payment. which means you don’t have to put as much of your own money at risk.

5. You can move sooner: If you’re going to move frequently and can’t keep track of changing loan terms, a bridging loan is a good option. You only have to know your monthly payment, which is much more efficient than juggling several loan types.

6. You can take out several loans: With a conventional mortgage and a conventional down payment, you may have to wait a long time before you can take out a second loan. With a lower-cost loan, you can take out multiple bridge loans and have them paid off faster.