New York State Real Estate Salesperson Licensing Exam

What type of loan is specifically designed for temporary financing during real estate transactions?

1. Construction loan

2. Home equity line of credit

3. Bridge loan

4. Personal loan

The correct answer is: Bridge loan

A bridge loan is specifically designed for temporary financing during real estate transactions. This type of loan is commonly used when a buyer needs to quickly access funds to purchase a new property before they are able to sell their existing property. The bridge loan essentially "bridges the gap" between the two transactions, providing the necessary cash flow to facilitate the purchase without waiting for the sale to close. In many cases, bridge loans are secured against the current property, allowing the borrower to leverage their existing equity. This makes them particularly useful in competitive real estate markets where buyers need to act quickly to secure a property. Other types of loans mentioned, such as construction loans, are intended for funding new construction projects rather than facilitating quick transactions for the purchase of existing homes. Home equity lines of credit revolve around tapping into the equity of a home but are generally not designed for immediate, short-term purchasing needs. Personal loans, while flexible, are usually not specifically tailored for real estate transactions and may not provide the necessary amount or terms suitable for such purchases.