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What is a Bridge Loan?
Most homebuyers need to sell their current homes to purchase a new one. The reality is, it's tough to afford two mortgage payments at the same time, and to put down a down payment on a new home. In addition, it's tough to qualify for another home loan when you already have debt in the form of your current home mortgage on the books.
Say you already own your home free and clear. Well what if you used the proceeds from the sale of your home to put towards a down payment on your next home? The typical protocol is you play the waiting game until an acceptable offer on your current home comes in - and potentially face temporary living quarters while you search for your next home! Of course you could go making an offer on your next home, with the dreaded home sales contingency clause. BUT, if you've ever been through the home buying process, you know how hard that can get.
Meet the Bridge Home Loan
With a Bridge loan, also known as gap financing, interim financing and a swing loan, you can qualify for and buy your dream home, without the issue of a home sale contingency clause and without having to sell your current home first. The Bridge loan provides short-term home financing, to bridge the gap until you receive a solid offer on your current home. It's a well-known option during the busy home buying season, when home buyers are competing with multiple offers.
The Bridge Loan provides you flexibility with your home financing. No more the question of which came first, the chicken or the egg - buy or sell your home first?
Real Life Scenarios with the Bridge Loan
Meet John and Linda
John and Linda found their dream home. They loved the community and the idea that, because the home wasn't fully built, they'd be able to request a number of customizations. The builder wouldn't finish construction until an offer was made on the home. Because John and Linda already owned a home, their offer came with a contingency clause; they couldn't buy the new home until their current home was sold.
Unfortunately, the builder wouldn't entertain an offer with a contingency clause. Meanwhile John and Linda didn't want to sell until they were 100% certain their new home was going to be completed. It was a catch 22.
With the Bridge Home Loan, John and Linda were able to present an offer without a contingency clause. Because the program does not require the sale of the current home, they didn't experience the typical pressure to sell fast. With a solid offer, the builder completed the home and they bought it right away! With no immediate pressure to sell their previous home, they waded through the dicey offers until a compelling one came along. It took just two months.
Once they sold their previous home, they refinanced right away into traditional financing, which allowed them to lower their overall loan amount with the funds from the sale. It also lowered their monthly mortgage payment. John and Linda, their two kids and dog didn't experience the fiasco of finding and living in temporary quarters like so many when in this position. They experienced pleasant holidays and an easy move.
Meet Don and Susan
Don and Susan already owned their home free and clear. They were retired, all the kids had moved out and they were looking to downsize.
They found their dream home. Perfect size and easy to maintain! But, they ran into a snag. They didn't want to risk losing out on their dream home, while they also wanted to wait for the right offer to be presented on their current home.
The Bridge Home Loan Program afforded them the luxry to buy their dream home AND wait for a good offer on their current home. They moved into their dream home and sold their previous home just 5 months later.
Why consider a Bridge Loan?
Understands your current debts
How can you qualify? With the Bridge Loan, the mortgage payment on your current home is excluded from the debt considered when qualifying for the Loan.
The Bridge Home Loan provides the equity needed to go towards a down payment - it takes a look at your current home as an asset which helps you qualify, also known as cross collateralization.
The Bridge Loan will allow you to buy your dream home while it's still on the market! By waiting for the sale of your current home, you could miss out. Try making an offer with a home sale contingency clause, and your offer becomes the ugly duckling.
Avoid the home sale contingency clause
AKA the ugly duckling: the offer with the home sale contingency clause. This is when an offer on a home includes a home sale contingency clause (I have to sell my current home before I can buy my next home). To most, this is very unattractive as this could cause delays for the seller, who likely also wants to use the proceeds from the sale to buy their next home.
Avoid temporary living quarters
The Bridge Home Loan gets you into your dream home without having to rely on selling your current home. Say you decided to sell your current home before finding your dream home, and then you get an amazing offer on your home that you just can't pass up! Many find themselves in temporary living quarters until their dream home finally surfaces. Focus on what YOU want FIRST.
Reduce the pressure to sell
The Bridge Loan gives you the chance to wait for an ideal offer on your current home so that you don't have to desperately accept whatever comes in. It relieves the pressure of time.
But, manage two mortgage payments at once?
For some of you that don't own your current home free and clear, this is a legitimate concern. But good news, the Bridge Home Loan Program is a short-term, interest-only home loan program. As an interest-only loan, you will not have to worry about two hefty mortgage payments. Once you sell your home, you will refinance into permanent home financing.