Bridge Loans and How They Can Help You Buy a Home
Basics of Bridge Loans
How Bridge Loans Help You Buy AND Sell a Home
When you’re looking to buy and sell a home at the same time, it’s important that you understand and utilize all of the resources available to you to make sure that your transition from your previous home to the next is as smooth as possible. A bridge loan is one such resource that could make your transition from home to home significantly easier.
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What is a Bridge Loan?
In essence, a bridge loan is a short-term loan used until a person secures permanent financing or moves an existing obligation. (i.e. trying to buy AND sell a home at the same time!)
This type of loan allows you to use the equity in your current home for the down payment of a new home. It’s a great option for home sellers who have found their dream home, but are still waiting for their previous home to sell.
The biggest reason that home buyers decide to utilize a bridge loan is that it allows them to put in a non-contingent offer on a home. A contingent offer is typically viewed as less favorable than offers that are non-contingent in the eyes of the home seller, meaning that if you have a home that you are very serious about buying, you can work with your real estate agent and lender to make sure your offer is as competitive as possible.
How Do Lenders Typically Package Bridge Loans?
Typically as a consumer, a bridge loan will be presented to you in one of two different formats presented below.
- Holding Two Loans: In this situation, you are borrowing the difference between the current loan balance and up to 80% of your current home’s value. The funds from the second loan are applied to the down payment on the new home you are looking to purchase. This situation allows your new home loan to stay intact until you are ready to pay off the remaining balance with the sale of your current home.
- Rolling the Two Mortgages Together: This situation allows you as the buyer to take out a single large loan to pay off the balance of your current mortgage AND cover the cost of the down payment on your new home.
In either case, lenders will typically only offer bridge loans worth up to 80% of the combined value of the two properties, meaning the borrower must have significant home equity in the original property or plenty of savings on hand.
What are the Average Fees Associated With a Bridge Loan?
A bridge loan can be extremely helpful when looking to buy and sell a home at the same time, but they do come at a price. When you take out a bridge loan, you can expect a higher interest rate than you would receive on a conventional loan. Keeping in mind that bridge loans are temporary and can only be held for up to one-year maximum.
Who Qualifies for a Bridge Loan?
The following items are the key things that lenders will look for and evaluate when determining whether you qualify for a bridge loan or not.
- Low Debt-to-Income Ratio
- Credit History
- FICO Credit Score
- Amount of Equity in Your Current Home
Contact Us Today to Learn More About Qualifying for a Bridge Loan!
If you are interested in buying a home and selling your current home, contact us today! Our team of experienced and professional agents have worked with numerous clients wanting to sell their current home and buy a new one, and have worked with them and our trusted lenders to facilitate the entire process. Contact us today by giving us a call at (816) 268-4033, or by filling out the contact form below for more information!