What’s a Bridge Loan and Should I Get One?

Selling your current home and buying another is an understandably stressful time. In a perfect world, everything would line up: you would sell your current house, quickly find your new dream home, close, and move in before relinquishing your keys on your current home.

But we all know this doesn’t always happen. What if offers pour in overnight, but you can’t find a new home? Not everyone has the luxury of friends with a spare couch to crash on, and everyone wants to avoid a double move.

To avoid the dreaded double move (moving into a temporary location while you wait to close on your final home), many people look for houses before listing their current home. This gives buyers more time to find their new home, which helps avoid settling for a less desirable home or being forced into temporary housing.

But how can you shop for a home without having the money to pay for it? Some banks will offer what’s called a bridge loan.

What’s a Bridge Loan?

A bridge loan (also called a gap loan or swing loan) is a short-term loan that helps you buy a new house before your old one has sold. It uses the equity of your current home to fund the down payment of your new one.

Say your current home is worth $400,000 and you owe $50,000 on your mortgage. If you got an $80,000 bridge loan, you could pay the $50,000 you owe on your mortgage, $2000 on closing costs, and then have $28,000 to put as a down payment on your next home.

How Do I Get a Bridge Loan?

Bridge loans are relatively hard to receive, as only a few banks give them to qualifying individuals. Since a bridge loan is risky for a bank, there are higher standards for bridge loans than mortgages. For instance, you need at least 20% equity to qualify. Your debt-to-income ratio and credit scores are also considerable factors. Many individuals seeking a bridge loan may be denied based on low credit scores or high debt-to-income ratios.

To receive a bridge loan lender. Your realtor will have suggestions and (more importantly) connections with potential banks for the loan. If you’re considering a bridge loan, speak with your realtor first.

What Are the Benefits of a Bridge Loan?

There are many benefits to a bridge loan! You can:

• Put in a competitive offer quickly without needing a contingency offer
• Have immediate funds to relocate
• Avoid the hassle of coordinating the sale of your home with the purchase of a new one
• Defer payments, which gives you more cash to put down on your new home

What Are the Downsides of a Bridge Loan?

The ability to shop for your dream home with extra cash in your pocket sounds almost too good to be true! Unfortunately, there are some downsides to using a bridge loan.

• There are higher fees and interest rates compared with standard mortgages. You’ll pay more money in the long run by using a bridge loan.
• Bridge loans are only given for six to 12 months and hinge on the sale of your current h
  ome. If you can’t sell it within the given time frame, you are subject to additional fees.
• You must pay your bridge loan payment and your current mortgage until your current home sells.
• It is very hard to get a bridge loan, so you should keep your options open

Your realtor or mortgage lender can answer all your questions about bridge loans and whether it is an option for you.

Whenever you begin the process of moving, contact Peavler Moving & Storage for the relocation of your possessions! Our skilled team can manage your whole relocation from start to finish, and even store your possessions in one of our quality storage facilities. Contact us today to get started!