Let’s say you’re house-hunting and you find the perfect home for you and your family. You love the neighborhood. You love that it has a backyard for your kids to play in. Your prospective new home meets all of your needs. There’s just one problem: It’s a sellers’ market and you can’t afford to buy it until your current home sells. It’s a common scenario among homeowners. Fortunately, there exists a short-term solution designed to bridge the gap between the sale of your current home and the purchase of your new home: a bridge loan.
A bridge loan is a short-term loan that allows a homeowner to use the equity they’ve acquired in their current home to finance a down payment or mortgage on their new home. Bridge loans are typically granted for a term of up to 12 months with a fixed interest rate. Monthly payments typically consist of interest only until the borrower’s current home sells and the bridge loan is paid back in full. Compared to traditional loans, bridge loans usually have a more rapid application, approval, and funding process.
In order to qualify for a bridge loan, lenders may require:
- Documents verifying income and assets
- The purchase contract for the new home
- A mortgage statement
- Verification of homeowner’s insurance on current home
A bridge loan may be particularly advantageous during a sellers’ market where your current home will likely sell quickly. It’s also a useful solution for homebuyers looking to purchase a home from a seller who will not accept an offer that’s contingent upon the sale of their current home.
In a sellers’ market, sellers may receive multiple offers, and some may be all cash. This puts buyers who have capital tied up in their current homes at a disadvantage. A bridge loan can help by enabling the prospective buyer to make a competitive offer before their current home sells. A bridge loan can also buy you time if you plan on making repairs or renovations on your existing property before putting it up for sale at a higher price point. You'll have the flexibility to purchase a new home, move in, and get your existing home into shape in order to attract higher bids once it's on the market.
Finally, if you’re relocating and need to find a new home in a short amount of time, a bridge loan can help you make the leap to a new city while still tying up loose ends and putting your home on the market in your current location.
When working with a lender like First American Bank, your relationship doesn’t need to end with the bridge loan. At First American Bank, we also offer a variety of mortgage options to help you comfortably finance your new home. The mortgage application and approval process can be difficult to navigate even for experienced homebuyers. First American Bank is here to serve as your accessible, knowledgeable partner guiding you every step of the way.
Ready to learn more about how a bridge loan can provide much-needed peace of mind while moving between properties? Get in touch with one of our lenders today.
