It’s a common situation: you are ready to move and have found the perfect new home, but you need to sell your current home to fund the purchase. Many homeowners don’t have the liquid assets to carry two mortgages at the same time. You could make an offer on the home contingent on the sale of your current one. But in a seller’s market, it can be tough to win an offer with a contingency. Sellers want fool-proof guarantees that the sale is going to happen and contingencies not only add a layer of doubt, they also tend to make it take longer to get to the closing table. There is another option: a bridge loan.

How a Bridge Loan Works

1. Secured by Current Home: A bridge loan is secured by the homeowner’s current property. The loan amount is based on the equity in the current home.
2. Short-Term Nature: Bridge loans are short-term loans, usually lasting from six months to a year. They are designed to be paid off once the current home is sold.
3. How long does the approval process take: Loan review and approval generally take 24 hours. This is significantly faster than a typical mortgage approval timeline.
4. Cost of the program: It’s free to get started and see how much equity you can unlock. If you elect to use the Buy Before You Sell program we offer, the following fees will apply:
   – 2.4% of the sale of the home or $9,000 if the sales price is $375,000 or less.
   Inspection Fee.
   – State Mortgage Tax / Intangible Tax *as applicable
   – Recording Fee.
   – Notary Fee.
   Note: The above fees are added to the payoff for the Equity Unlock, also known as the Bridge Loan.
5. How much can you borrow?: The amount of equity you can unlock is determined using the lender’s  proprietary algorithm, which takes into consideration the estimation of your home’s value, current market conditions, projected market risk, borrower financials, outstanding loans, and more.
   You’ll be able to unlock a portion of the overall equity you have available in your home upfront, and prior to your current home being sold.
   You will be receive the remainder of your equity after the home sells, less the fees above and expenses.
6. What if your house doesn’t sell?: While traditional bridge loans would require the full loan to be paid in full by the end date of the loan, there are new options where lenders will include in the loan an agreement to purchase your home at a predetermined price if you are unable to sell it within a certain amount of time. This is called a backup offer. And many programs will pay you the net proceeds if your lender sells your home for more than the backup offer amount. This option provides an added sense of security for buyers.

Benefits of a Bridge Loan

1. Enables Purchase Before Sale: The primary advantage of a bridge loan is that it allows homeowners to purchase a new home before selling their current one. This can be especially useful in a competitive housing market where finding a new home that meets specific needs may require swift action.
2. Avoids Interim Housing: Without a bridge loan, homeowners might have to sell their current home first and then find temporary housing until they can purchase a new home. A bridge loan eliminates the need for interim housing, reducing the hassle and expense of moving twice.
3. Strengthens Buying Position: Having the funds available from a bridge loan can make a buyer’s offer on a new home more attractive. Sellers are often more willing to negotiate with buyers who have secured financing and do not need to wait for their current home to sell.
4. Flexibility in Timing: Bridge loans provide flexibility in timing the sale of the current home. Homeowners can take the time to sell their home at a desirable price rather than feeling rushed to sell quickly to secure funds for a new purchase.
5. Sell your current home with peace of mind: List your home vacant home on the market to attract the strongest offer possible without the personal clutter or the stress of keeping a living space tidy for viewings.

Example Scenario

Imagine a family who has found their dream home but has not yet sold their current home. They need funds for the down payment and closing costs of the new property. By taking out a bridge loan, they can use the equity in their current home to secure the loan and cover the costs of purchasing the new home. Once their current home is sold, they use the proceeds from the sale to pay off the bridge loan.

Conclusion

A bridge loan can be an invaluable tool for homeowners looking to purchase a new home before selling their existing one. It offers the flexibility and financial capability to navigate the transitional period between selling and buying properties. However, it’s important to weigh the benefits against the costs and risks, and to consult with a mortgage professional to determine if a bridge loan is the right solution for your specific situation.