What Is A Bridge Loan?

Jan 28, 2021

  • Home Loans
  • Non-QM Loans
  • Non-conforming Loans

Going through the home purchasing process can present many challenges. One such challenge is what to do when you find the home of your dreams, but you haven’t sold your current home yet. You don’t want to wait for your home to sell, but you won’t have the proper funding to buy the new home without the sale proceeds.

This is where a bridge loan can help. Bridge loans allow you to access the equity in your current home so you can make an offer on the new house without a sale contingency.

How do bridge loans work?

The easiest way to think of how a bridge loan works is to provide you with the cash to pay off what you still owe on your current mortgage, plus a little more for a down payment on the new home. The loans are generally short-term. For example, let’s say your existing home is worth $300,000, and you still owe $100,000 on the mortgage. You get a bridge loan for $125,000, which pays off the mortgage plus puts $5,000 towards closing costs and other fees, and $20,000 for the down payment on the home you are purchasing.

Pros and cons of bridge loans

Pros:

  • It makes cash available, so you get the home you want without waiting to sell or needing a sale contingency
  • It puts odds in your favor in a competitive market
  • If you don’t have cash for a down payment
  • Payments can be deferred or interest-only until you sell

Cons:

  • May have to pay for an appraisal, along with associated closing costs and fees
  • Might own two homes with two mortgage payments for a while
  • Higher interest rates than conventional loans
  • Lenders usually require at least 20% home equity

Bridge Loans may not be for everyone, but if you’ve found the home of your dreams in a competitive market and your house hasn’t sold yet, a bridge loan may the best solution. If you would like to find out if a bridge loan is right for you, contact the experts at NASB at 855-465-0753, or click here for more information.