Do you plan on selling your home while moving to a new home? Doing this simultaneously can be a challenge—more so if you, as the homebuyer, plan to use the profit from selling your current home to buy your next home. On the bright side, a bridge loan with a trusted local lender can help with this process.
What is a bridge loan?
To summarize, a type of loan is a short-term loan used to “bridge” the gap between buying a home and selling your current one. So, for those using the money from the equity of the sale of their home for a new one, a bridge loan helps finance the purchase while waiting for a sale to be complete.
How does a bridge loan work?
You can apply for a bridge loan with a local lender. Although terms can vary, it is common to borrow a maximum of 80% of your home’s value and the value of the new property you are interested in.
One of the most common ways to use a bridge loan is for closing costs.
Getting a bridge loan.
To qualify for this loan, your lender will look at standard things such as your debt-to-income ratio, the amount of equity you have in your home, your credit score and your household income. Being a good mortgage candidate with your primary home also helps the process.
Qualifying for a bridge loan without substantial equity in your current home can be difficult. However, if your lender determines you’re an ideal candidate, you can experience a fast approval process.
How to repay a bridge loan.
So, how do you repay this loan after it’s successfully secured? Depending on the lender’s terms, bridge loans are typically short-term loans structured with interest-only payments until the property is sold.
Advantages of a bridge loan.
Bridge loans benefit buyers in a seller’s market or in a market where inventory is low and purchasers feel their current primary home will sell quickly, as will the home they are interested in purchasing.
Overall, this type of loan gives buyers a chance to secure a house without the contingency of having to sell their current house. A bridge loan may also give you an edge when competing with other buyers for a potential home.
This loan can also make the home-buying process faster. Plus, you can avoid private mortgage insurance (PMI) by putting down 20% or more of your down payment.
Summary
Has discovering what a bridge loan convinced you that you can successfully make a move? Work with a professional who knows all the ins and outs—plus the terms you need to know—like Ryan Roberts! Learn more about our local real estate market and the surrounding area by reading our blogs.