Bridge loans are temporary loans that link the gap between the sales price of a new home and new mortgage. This type of mortgage is beneficial if the buyer’s home is in the market but not yet sold. Thus, you can use the bridge loan amount as your down payment for the second home. This loan is secured by buyer’s existing/first home.
Is bridge loan a better option? It depends!
They are popular in certain real-estate markets. Bridge loan helps to buy another home before selling the existing one. The main advantage of a bridge loan is to evade an existing offer and make your offer which is more attractive to a seller.
There are mainly two ways to buy your second home – through your home equity or through a bridge loan. A home equity loan is less expensive, but bridge loans are more beneficial to many applicants. Sometimes if your existing home is on the market, then many lenders avoid giving home equity loan.
For many lenders, they do not have set guidelines for FICO minimums nor debt-to-income ratios. Funding is conducted by a more underwriting approach. Though, the long-term financing obtained on the new home requires guidelines.
The borrower is qualified to buy the new/second home by adding the existing mortgage payment (of the existing/first home mortgage payment) to the new mortgage payment of the second home.
Benefits of Bridge Loans
- The buyer can buy without any restriction.
- A buyer can immediately put the existing home on the market without any restrictions.
- Bridge loans may not require monthly payments for few months
- If the buyer has made a contingent offer to buy and the seller issues a Notice to Perform, the buyer can remove the contingency to sell and still move forward with the purchase.
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