What is a Bridge Loan? A Guide to Buying and Selling Simultaneously
Are you considering buying a new home but worried about the timing of selling your current one? Maybe you’ve heard people mention bridge loans, but aren’t sure if they’re a good fit for you. Many homeowners wonder about the best way to buy and sell simultaneously, especially when there aren’t many homes on the market. Having to move twice or settle for a less desirable home can be stressful. The good news is that there are options to help you buy a new home before selling your current one.
What is a Bridge Loan?
A bridge loan is a short-term financing option designed to “bridge” the gap between the purchase of a new home and the sale of your current home. It provides temporary funding that allows you to make a down payment on a new property before your existing home sells. Bridge loans typically have higher interest rates and shorter terms compared to traditional mortgages, usually lasting 6 to 12 months.
Now, let’s look at the options available to homeowners in your situation:
Traditional Bridge Loan
With this option, you keep your existing mortgage while obtaining a home equity loan to access a portion of your current home’s equity. It’s typically the least expensive choice, but you’ll need to qualify based on all three mortgage payments: your current mortgage, the bridge loan, and the new home’s mortgage.
Portfolio Bridge Loan
Similar to the traditional bridge loan, this option involves a cash-out refinance of your existing home loan. It pays off your current mortgage and provides cash for a down payment on your new home. The advantage is that you may only need to qualify for the new mortgage, as the old home’s payment can often be ignored for qualification purposes. While more expensive than a traditional bridge loan, it can be easier to qualify for.
Buy Before You Sell Programs
We offer programs that allow you to access equity from your current home for a down payment on a new one. These programs often provide a guaranteed offer on your current home, which can satisfy mortgage lenders’ requirements to ignore your old mortgage payment when qualifying for the new home. While these options tend to be more expensive than traditional bridge loans, they give you time to sell your current home for top dollar, potentially offsetting the additional costs.
When considering these options, it’s important to:
- Consult with a trusted mortgage professional (like us!) to understand which option best suits your financial situation.
- Compare the costs and benefits of each program.
- Consider how each option might affect your ability to qualify for your new home purchase.
- Ensure you’re comfortable with the risks and obligations of each option.
Remember, buying a new home while selling your current one doesn’t have to be overwhelming. By exploring these options, you can find a solution that allows you to make your move with confidence and minimal stress. Reach out to us to discuss these options in detail and find the best path forward for your unique situation.
