Whether you are an individual or a business, getting a bridge loan can help you secure funds for a major purchase such as new property. However, the process is not always straight forward, and many people have lost their shirt because they made huge mistakes.
Will you make these 4 bridge loan mistakes?
Not exploring other options first
While a bridge loan is a way to get quick money into your bank account, it’s not the only way, and in most cases should only be used as a last resort.
With this in mind, you should always explore other options first, such as getting a bank loan or securing a new mortgage. Only once these kind of options have proved fruitless, does a bridge loan become your only choice and something worth pursuing.
Not understanding the interest rates
Know this: A bridge loan is a risky venture for the lender, which means they have to cover their risk by attaching larger than average interest rates to the amount you borrow.
If you don’t fully understand the interest rate being offered, or it is not entirely clear, then you should seek further clarification before proceeding. Never walk into a bridge loan with a blinfold on.
Not choosing the right lender
Unfortunately, in recent years there has been a lot of “fly-by-night” lenders coming out of the woodwork and offering bridge loans. These kind of lenders draw you in with massive hype and over the top claims, but once they have your signature on the dotted line it all starts going downhill.
For this reason, make sure you choose the right lender. Check to see how many years they have been in business, delve deeper to read about the experiences of past customers, and confirm they are a legitimate business who are licensed to operate in your State.
Not realizing the risk
Let’s face it, bridge loans do carry a lot of risk, which is why you need to weigh-up your options before taking the plunge. For example, if you have a buyer already lined up for your property but have to wait a few months before the deal can be finalized, then you might be thinking about taking out a bridge loan to secure a new property?
Ultimately, you must understand that there is still some risk involved. What if the deal on your current property falls through? What if you overlook an important detail? Always be aware of the risk before proceeding.