All About Bridge Loans
We’ve had a lot of questions lately about bridge loans from Realtors and buyers alike, mostly because we’ve been doing a lot of them! In fact, we’ve done more bridge loans in the last two years than ever in our history of existence (36 years!) That tells you a bit about our market! Let’s talk about what bridge loans are and when you would use one.
What is a Bridge Loan?
One of the most common questions from clients who already own a home is if it is possible to apply the equity in their current unsold home to purchase a new home. Yes—it’s possible! That equity is YOUR money—it’s just not sitting in your bank yet. Enter bridge loans!
A bridge loan is when a buyer takes the equity from their current home to use as a down payment on their new home, literally creating a “bridge” between the sale of one home and the closing of another home! The bridge loan is then paid off when the buyer sells their current home.
Yes, bridge loans may seem confusing at first, but the reality is that they are simple and used in our industry a lot. Everyone who owns a current home that may not be their “forever” home should know what bridge loans are and how they work because they may come in handy one day!
How do I Get One?
Most clients have an idea of the amount of equity they have and the amount they’d like to use toward a downpayment, but a realtor and a lender (like us) can help you figure out how much you have in equity and what your bridge loan amount should be. If you know that you’ll walk away with $50,000 from the sale, for example, and want to use all that money toward your new home, your bridge loan would be for $50,000. We do not require an appraisal on a buyer’s current home to give them a bridge loan. We estimate a reasonable value from the owner’s Realtor or limit the bridge loan to ensure there is still adequate equity when they sell the home.
A buyer has to then qualify for their new mortgage in addition to their current mortgage. This looks like: current mortgage payment + new mortgage payment + monthly interest on the bridge loan. All of this is applied to their monthly debts. A bridge loan does not cover payments for the existing home or new home.
Selling and Buying Soon?
We help clients with bridge loans all the time—we truly have a LOT of knowledge and experience on the topic. We also do not sell bridge loans. They are held internally until the buyer closes on the sale of their home. It’s a simple and streamlined process for us, so we can help you quickly and efficiently if you’re interested in a bridge loan. Reach out if you have any questions or concerns!