Another option is a Bridge Loan. Bridge loans let homebuyers take out a loan against their current home in order to make the down payment on their new home. A bridge loan may be a good option for you if you want to purchase a new home before your current home has sold.
A Bridge Loan requires a borrower to pledge their current home or other assets as collateral to secure the debt—plus, the borrower must have at least 20% equity in that home. Bridge loans also tend to have high interest rates and only last for between six months and a year, so they’re best for borrowers who expect their current home to sell quickly. his makes bridge loans a popular option for homeowners who want quick access to funds to purchase a new house before they have sold their current property.
How Bridge Lending Works
Often when a homeowner decides to sell their current home and purchase a new one, it can be difficult to first secure a contract to sell the home and then close on a new one within the same period. What’s more, a homeowner may be unable to make a down payment on the second home before receiving money from the sale of their first home. In this case, the homeowner can take out a bridge loan against their current home to cover the down payment on their new home.
In this situation, a homeowner can work with their current mortgage lender to obtain a short, six- to 12-month loan to “bridge the gap” between the new purchase and the sale of their old home.
Once the borrower’s first home is sold, they can use the proceeds to pay off the bridge loan and they will be left with just the mortgage on their new property. However, if the borrower’s home does not sell within the brief loan term, they will be responsible for making payments on their first mortgage, the mortgage on their new home and the bridge loan.
Is a Bridge Loan Right for You?
Contact any one of our trusted advisors at The Carnahan Group to guide you through the may options and process of buying and selling at the same time. 316-634-6767