It’s a common predicament many homeowners and real estate investors experience. The time comes to purchase a new property due to a killer deal, new employment opportunity, seeking more square footage or some other reason. They kick-off their house hunting and find the perfect property. In today’s ultra-competitive real estate market, buyers simply can’t afford any sort of delay when submitting an offer. The problem is they haven’t sold their current residence yet.
Buying another house without selling your first one may sound like a recipe for financial ruin, especially for the average American lacking substantial cash reserves. That’s where bridge loans come into play. This funding option is a cost-effective, flexible approach that is a viable solution for homeowners and investors looking to successfully navigate transitional periods. The financial experts at F.E. Forbes have years of experience assisting buyers to leverage the benefits of bridge loans. They have compiled the following overview to help you decide if a bridge loan is the right option for you.
Bridge Loan Basics
Bridge loans are exactly what they sound like: a loan structured to fund expenses incurred between the acquisition of their new home (or investment) and the sale of their current one. These financial tools are short-term loans that can be used in either a commercial or residential context. Here are just a few reasons why you may need to consider using a bridge loan for additional capital:
- Equity tied up in the existing home is earmarked for making a down payment on the future residence
- Excess profit garnered from the sale of the first home has to be diverted to cover the closing costs on the second one
- The more stringent lending guidelines associated with the Dodd-Frank Act makes it challenging to qualify for two separate mortgages
The bridge loan process is relatively straightforward. Buyers utilize the bridge loan to tap into the equity existing in their current home. They then leverage that equity to qualify for financing to cover up to 100% of the value of their new residence and close the deal. After moving in, borrowers can focus all of their attention on marketing and selling their old home and subsequently use the proceeds to make an initial down payment on the bridge loan. Then buyers will look to refinance any remaining balance on the bridge loan into a longer-term funding option.
Buyers should note that because bridge loans are specifically short-term loan options with terms typically less than a year, they generally have higher interest rates. However, because you can quickly make a substantial payment once you sell your home and then seamlessly transition into an extended mortgage with more favorable rates, this aspect of bridge loans should not dissuade you from considering it as a valuable tool to help you cover the costs of owning two homes simultaneously. Their real value is the flexibility it provides homeowners to submit competitive bids on homes that fit their personal preferences without having to wait to sell their existing home. Aspiring buyers no longer have to worry about securing expensive temporary housing and the costs associated with moving twice in a short timeframe. This reduces a significant amount of stress from the homebuying process and gives you a competitive edge in the current market where depleted inventory levels and increased demand make it challenging to land the right property.
A Trusted Lending Partner
Buying and selling real estate can be an intimidating process—but you don’t have to go through it alone. F.E. Forbes has been providing reliable, efficient funding solutions to the Bay Area community for over 100 years. We can get you the capital you need in a fraction of the time and stress associated with conventional lenders. Contact us today to learn more about how we can help your meet all of your real estate financing needs!