Buying and selling a home is an exciting and often fast-paced process. The delicate balance between selling your old home and finding, making an offer, and closing on your new home can be difficult to achieve. That’s where bridge loans come in. They take the stress out of the buying and selling process so you can focus on what matters most: getting into your dream home.
What is a Bridge Loan?
In short, a bridge loan is designed for you to be able to close on your new home without using equity gained from selling your current home. Typically, you would use the money you receive from selling to cover closing costs and the down payment on your new home. However, it’s a seller’s market and if you don’t move fast you could miss out on purchasing a home you really want. Using a bridge loan to cover these costs can help move the process along without the need to immediately sell.
How Bridge Loans Work
A bridge loan is typically taken out for a short term to be used during the transitionary period between buying your new home and selling your current one. They’re secured to your existing property rather than your new one, so you’ll pay them back using equity gained on the sale of your current home. Essentially, you’re borrowing the closing costs for your new home. Bridge loans will typically only have a term of about a year and often come with slightly higher interest rates and closing costs.
When is a Bridge Loan Right for You?
A bridge loan can be used in a few different scenarios. With the competitive housing market of today, sellers often won’t wait for the sale of a buyer’s current property before accepting an offer. A bridge loan will help you be able to move quickly on closing without worrying about gaining equity first. If you need to quickly relocate, you can buy a home in your new location without waiting for your old home to sell. This helps you avoid having to rent a property or stay in a hotel while your home is on the market.
What are the Qualifications for a Bridge Loan?
- Credit score: minimum of 680 is required.
- Credit history: no bankruptcies or foreclosures in the last 7 years, minimum 3 trade lines with a 12-month history, 0 x 30 late payments in the last 24 months on all mortgages. Loan currently not in forbearance and no forbearances on any mortgage in the last 6 months.
- Assets: 3 months or 6 months (non-retirement) reserves for departure residence, new primary and bridge loan depending on LTV.
- Occupancy: the departing residence that will be securing the bridge loan and the new home must be the borrower's current primary residence.
- Ineligible properties: manufactured homes, condos, and unique properties
- FBHL eligible states: Missouri, Kansas, Oklahoma, Illinois and Arkansas.
- Terms: the maximum loan amount is $100,000. Loans will be amortized over 360 months with a 6-month balloon (meaning bridge loans need to be paid off within 6 months).
A bridge loan is a great option if you want to close on a new property without the worry of waiting on selling your old one. With it, you’ll be able to move more quickly through the homebuying process and alleviate the stress of waiting on equity from selling or saving up for closing costs and a down payment. If you think a bridge loan could be right for you, contact an experienced lender at Flat Branch Home Loans to start the process!
