Bridge Loans: How to Purchase Your Next Home Prior to Selling Your Current Home
The housing market is often fast-paced and highly competitive. The perfect home for you and your family can literally slip away within hours. When you already have one home for sale and happen upon the perfect new home, what do you do? The tight-rope walk of moving to and from different homes is a nightmare for a lot of people, but bridge loans can actually be a really good option for a lot of people. Beth Bucynski writes for Nerd Wallet that a bridge loan can allow you to avoid having to make a contingent offer (an offer to buy contingent upon the sale of your current home) and possibly lose-out on your dream home.
How Bridge Loans Work
If you have equity in your existing home, a bridge loan can provide funding for a reasonably short period of time to allow for the transition of selling your property or potentially buying your next property. The lending requirements will be essentially the same as with a mortgage, where you’ll have to show proper credit and debt-to-income ratios, and you should have at least 20% equity in the property. In addition to using a bridge loan to purchase your next property, they can also be structured as a second mortgage to put together a down payment on a new property. Again, there has to be enough equity in the property to facilitate this option.
The Best Time to Use a Bridge Loan
Bridge loans are best used in fast-moving real estate markets. When properties in certain areas are moving quickly with no shortage of buyers looking to pounce, being able to move without any contingency is crucial. This also gives you the reasonable expectation that you will also be able to sell your property quickly. Because of this, bridge lending options are available through lending partners in these areas over others in the country where property moves slower.
Alternatives
If a bridge loan just isn’t in the cards, there are some other ways to structure your deal, though they may not be as effective. If you are able to sell your existing home, you may be able to negotiate a brief period of time where you rent back the home while you look for your next house. Depending upon the urgency to move on the part of the buyer, this may be an option. If this doesn’t work, you might find yourself having to move into a rental property for a short lease, and then move again when you purchase the home.
Finding the Right Lender
Trying to find the right lender for bridge loan financing can be tricky. If you are in the San Francisco area market, there are a few solid options. One, in particular, is Boston Private Bank. They offer loan services a little differently from other lenders and can move to close quickly. Following a two-step process for their bridge loans, Boston Private Bank has had a lot of success in the bridge loan market. First, they establish a line of credit based upon the home equity for the existing residence. This allows for a down-payment on the new residence. The second step is getting the buyer approved for the purchase of the new home. They generally require the sale of the first residence within a year of closing. They are an established lender and follow a solid pathway for getting people the help they need.
Is a Bridge Loan Right for You?
Thinking about downsizing or upsizing? Not sure how to make the transition of selling your current home in order to purchase your next home? Trying to avoid moving twice as part of this process? Knowing your personal situation as it relates to your home, you can determine if a bridge loan might be your best option.
Get in touch with Cheryl to discuss all your options when making this big decision.
415-999-3450
