Buying and Selling a Home at the Same Time? How a Bridge Loan Can Help!
One of the most stress-inducing financial situations for homeowners is finding themselves in the precarious position of buying and selling a home at the same time. This often happens to people who choose to upgrade their homes for more space and nicer features or to downsize their homes for financial or health reasons. It also happens to people who choose to relocate for work, desired school districts and/or nicer climates or for people who want to move to a house closer to their family and friends.
So what happens if you buy a house before your home is sold? The process of carrying an extra mortgage and not having any extra money in the bank is terrifying.
A bridge loan can be a quick answer to this question. A bridge loan is a short-term loan. It’s at a higher rate than traditional lending methods, and it bridges the gap between the sales price of a new home and a buyer’s new house price, in the event the buyer’s home has not yet sold. This type of loan is secured to the borrower’s existing home and pays the down payment for the newer home.
The benefits of using a bridge loan during the home buying process are pretty significant.
The buyers are able to quickly list their existing home on the market and look for a new house without any type of restraint. This can be especially useful to people who are upgrading homes or who need to relocate quickly for work-related reasons. The homeowner may not have a place to live because short-term housing may not be available. Upgrading homeowners often have trouble securing financing because many lenders will not lend on a home equity loan if the home is on the market.
Bridge loans may also not require monthly payments for the first few months which is huge for people who are still paying a previous mortgage. You can work directly with the lender to determine when mortgage payments will begin.
A direct lender who extends a bridge loan to a homebuyer usually does so with the agreement the same lender will be used to finance the new home’s mortgage with the same institution. The rates are higher, and the terms usually run for about six months. When considering a bridge loan, try to remember these crucial details and consult with a trusted financial advisor.