Common Mistakes to Avoid when Getting a Bridge Loan
While it is true that some people have this rather unfortunate impression of bridge lenders as loan sharks who are there to rip off their hard earned cash, it is not quite true. These are not lenders that are trying to capitalise on the financial misfortune of their borrowers.
While it is true that the costs involved for a bridge loan tend to be higher when compared to what conventional offers, this is due to the higher risks that the lender faces in association to the amount that he is lending to the borrower. Bridge lenders have a very crucial niche role in the real estate industry. They make it possible for borrowers to secure loans that would otherwise not have fit in the premise that many conventional lending is based on. Many real estate projects would not have seen the light of day had this financing option not been present.
That being said, there are a lot of people who get into applying for a bridge loan without really doing that much research about it and how it is done. Below are some common mistakes that you should avoid if you are thinking of applying for one.
Focusing solely on interest rate
While it is important for a borrower to secure a loan with low interest rates, it should not be the sole basis of his decision to borrow from a lender. There are other crucial factors that should also be associated with the decision as in the case of time involved, as well as the loan fees. Aside from rate, borrowers are also encouraged to check ahead of time if a lender really has the ability to fund his loan request as well as find out what exactly are the fees associated with the loan.
Not having a story
When it comes to conventional lenders, the process involved when applying for a loan tends to be straightforward. However, when it comes to applying for a bridge loan, the story of the borrower can have a huge impact on the decision of the lender to give the green light or not. Too often, borrowers do not really spend enough time to explain the reason behind their request for financial assistance which then leads to their request getting rejected.
Not having any exit plan
Many borrowers also enter into a bridge loan without even having an idea what their exit plan is. It is necessary for borrowers to assess ahead of time how much he can really afford to borrow and how much he can afford to pay back. A bridge loan is a short-term loan. This is why it is important for every borrower to think of how he can get the loan paid back afterwards to avoid unwanted fees.
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