Bridge loans in Connecticut can be a reliable source of quick financing for real estate investors and house hunters.
Connecticut bridge loans can be used as down payments for a new home when trying to sell the old house at the same time. It can also cover renovation costs for properties that one wants to fix up and flip.
One should take into account that Connecticut bridge loans come with certain measures of risks. Thus, the pros and cons of Connecticut bridge loans should be carefully weighed and considered before applying for one.
Connecticut Bridge Loans Considerations
It would not matter whether one needs some quick cash to insert into a fix-and-flip property for smoothing over renovations or cover construction delays. All the same, there are a couple of considerations before going for Connecticut bridge loans. Determine if they are right for you!
The Pros of Connecticut Bridge Loans
1. Connecticut Bridge Loans Do Not Need Income Statements
Private entities giving out Connecticut bridge loans are exempt from federal regulations requiring one to provide income documentation or a client’s credit score. This is to say that the money gotten from the sales of the existing property can also be funded towards paying back the loan.
2. Connecticut Bridge Loans Have Flexible Repayment Schemes
Private money lenders of Connecticut bridge loans are familiar with flix-and-flip projects not taking off as planned, or for exit strategies taking longer than originally determined.
During these cases, Connecticut bridge loan payments can be deferred or turned into an interest payment-only scheme until the sale of the old property is made.
3. Connecticut Bridge Loans Serves as Quick Access to Funding
Private money lenders of Connecticut bridge loans are privately funded and are secured by a property’s value; thus, these lenders do not take much into account a borrower’s credit rating.
Consequently, they have a much shorter time frame of approval compared to traditional loans. On average, Connecticut bridge loans from private lenders get assessed and get final approval in around 3 to 7 days only.
The Cons of Connecticut Bridge Loans
1. Connecticut Bridge Loans May Have Smaller Pay-back Window at Higher-interest Rates
Connecticut bridge loans from private lenders typically have higher interest rates than conventional loans, and these loans need to be paid back in a briefer period.
Accordingly, when one has to pay the interest rate for a few months before a Connecticut bridge loan is repaid, the loan interest can be as much as 15% or even more of the total loaned amount.
2. Connecticut Bridge Loans Increase Borrower Risk and Debt
True enough, all loans come with an established level of risk, and Connecticut bridge loans are no exception. In a lot of cases, property investors will split Connecticut bridge loans over two properties. This means that for some time they will be required to pay 2 or 3 bridge loans back all at once.
Investors should consider that this could put a strain on their project budgets for fix-up and flip properties. To add further, if hard financial times strike, it will surely put them in a strained financial situation.
3. Connecticut Bridge Loans Have Additional Fees and Transaction Costs
Everything about Connecticut bridge loans can spell cost – from administration to appraisal, to escrow, and even origination fee. These fees differ from Connecticut to other states but they can be as high as 15% of the total loan in some instances.
Also, after selling a flipped home, a lot of property investors should expect to pay a percentage (typically 3 to 6%) of the sale price to real estate agents that have managed the transaction. This fact could wound the investor’s margin for profit.
Are Connecticut Bridge Loans Right for Everyone?
Choosing the correct kind of financial funding will ultimately boil down on one’s financial situation, overall goal, the status of the housing market, and course the geographical location – in this case Connecticut.
Typically, a private lender of Connecticut bridge loans will be the most likely reasonable solution when looking for the best financial funding option for fix-and-flip properties, distressed properties, or properties for rental that is not producing income yet.
One should keep in mind when considering the pros and cons of Connecticut bridge loans that almost all kinds of monetary funding or transactions involve risk.
The key to minimizing risk and increasing chances of success in any funding venture is to have all the facts and figures laid out. This way, flipping a distressed property for a tidy profit can translate to a maximized loan repayment and income.
Whatever financing route one chooses – whether Connecticut bridge loans or others – make sure advice is gotten from a real estate team or experienced private money lenders. This can be one way to make sure the right decision has been made.
Connecticut Bridge Loans vs. Loans for Home Equity
Before jumping right into Connecticut bridge loans, it is highly advisable to compare them with home equity loans. Home equity loans are somewhat similar in terms of how they work.
Similar to Connecticut bridge loans, home equity loans are secured – meaning the current home is used as collateral. While it may sound risky and absurd to have one’s home as collateral, the property owner should have enough time to sell the current property before the loan term ends.
Although these two loans are considered secured loans and are similar in this way, they are quite very different from each other. Firstly, home equity loans are generally considered long-term loans.
The majority of home equity loans come with longer periods for repayment lasting anywhere from five to twenty years, which is much higher compared to the 6-to-12-month standard repayment period of Connecticut bridge loans.
Due to the longer terms of home equity loans, interest rates are expected to be typically lower as well. When qualified for standard home equity loans, the interest rates can be expected to be around 6% – still decidedly lower than 8 to 10% coming from Connecticut bridge loans.
Here’s the catch though! Home equity loans can be riskier for you compared to Connecticut bridge loans. While Connecticut bridge loans are riskier when unable to sell the property, a home equity loan puts property owners at risk of paying for three separate loans.
This scenario crops up in the event the old home does not sell on time, which will divide the original mortgage, the new mortgage, and the home equity loan that has been financed.
One should keep in mind that both financing options have their accompanying risks. However, Connecticut bridge loans are typically the better option as long as it fits the situation right.