SIMPLY DEFINED:
What is a Residential Bridge Loan? Who Can Use One?
A Bridge Loan is a short-term loan that “bridges” two points in time. The most common use for a residential bridge loan is to buy a new home before you sell your old one – giving you more flexibility and control, and in many cases saving you money.
In that situation, a bridge loan rolls multiple mortgages together while waiting for a property to sell. A bridge loan may be secured by either the new property or the buyer’s existing property. The bridge loan provides a viable way to temporarily own both homes – you simply pay off the bridge loan with the proceeds when you sell your original home. This type of bridge loan is frequently used by retirees who want to move quickly to be near loved ones or specialized medical care. However, it can be used by any homeowner who wants to buy a new home before selling the one they are living in. There are many benefits, both financial and logistical, to this approach.
Another use of a bridge loan is to prevent the “domino effect” when a buyer’s financing falls through in a contingency contract. Rather than letting the lost buyer derail the whole process, a bridge loan may allow a homeowner to proceed with their new home purchase while looking for a new buyer.
Most bridge loans are good for up to twelve months and have slightly higher interest rates than a traditional conventional loan – but since they are short-term loans, the amount of interest paid remains low.
Benefits of A Bridge Loan
- Avoid having to sell your old home before you buy your new one
- Your current mortgage payment may not count for qualification on your new loan
- Avoid moving two times
- Apply equity from your old home to your new property
- Get the lowest possible rate on your new loan (by keeping your new loan amount under the jumbo loan threshold)
- Avoid the need for contingency contracts that can make sellers uneasy and can create added stress
- Gain negotiating power with an “all cash” offer – sellers are twice as likely to accept a cash offer, even if it is lower!
- Get the best possible price on your new home by offering cash
- Sell your current home for top dollar
Common Uses of Bridge Loans
Bridge loans allow homeowners the flexibility to look for and purchase a new home without being financially constrained by the sale of their existing home. Bridge Loans are a great way to stay competitive in a ‘hot-market’ where quick financing – provided by the faster application, approval, and funding process – is attractive to sellers. If a Buyer has made a contingent offer to buy and the Seller issues a Notice to Perform, the Buyer can use a bridge loan to move forward with the sale and remove the contingency.
Although more heavily used in commercial transactions, Bridge Loans are becoming more common in residential settings for buyers with one or more of the characteristics below:
- Certain their existing property will sell quickly
- Retired on a fixed income and cannot quite qualify for a traditional mortgage
- Want a competitive edge in a highly active market
- Need to move quickly for personal or work reasons and do not have time to wait for their previous home to sell
- Need equity from their old home to purchase a new home
- Want/need to follow through on an offer to buy a new home even though the buyer fell through on their old home
Bridge Loan Programs from Hurst Lending
We aim to serve our clients with the understanding that each client might have different needs, desires, and circumstances. For this reason, we have created a number of Bridge Loan programs to suit a variety of circumstances. Each of our bridge loan programs is uniquely designed to fit circumstances our clients have described throughout the history of our company. If you have a unique circumstance not listed or identify with multiple programs, please contact us to see how we can best serve you.
"Move Up Buyer"
If your current property is too small for your needs, but you have built up equity and are eager to purchase a larger home, a Bridge Loan is a great way to secure a new home without waiting for your existing property to sell or dealing with the hassle and cost of moving twice. Hurst Lending provides bridge loans that consider your existing property’s equity so you can use the money to secure a new home that better fits your needs. This program gives you “credit” for the money you have invested in your existing home to put towards your dream home. Using a bridge loan allows you to secure a low-rate, no-PMI conventional loan for your new home because, between your small down payment and our bridge loan, you can put 20% down on your dream home. Then, as soon as the home you’ve outgrown sells, the bridge loan is paid off! This option is also a great way to stay under jumbo loan limits.
Retired/Fixed Income Buyers
Self Employed/1099 Contractor Buyers
"Buyer Fell Through" Bridge