As a home buyer, you have a variety of loan options when it comes to purchasing a new home. If you have found the one you want but you’re still waiting for yours to sell, a bridge loan might be an option.
A bridge loan is a financial vehicle that meets immediate cash flow needs between the time that you need the cash and the time that you will have that cash. It is a short-term option that is often used in business while waiting for long-term financing. Typically, the only time consumers use them is in real estate transactions.
A bridge loan “bridges the gap” when you are simultaneously selling your current home and buying a new one.
Bridge Loan Advantages
The primary advantage of a bridge loan is that you can place an offer on a new home, with no contingencies attached. If there are several offers on the table, this may be your only chance of having yours considered. It also makes things easier if your family needs to move due to a job relocation or the current living situation is not meeting your needs. If the market is such that homes are languishing, you may need to move before you’ve had a chance for yours to sell.
Of course, you may find that your home sells quickly- before you have even had a chance to find another one. This will require moving into temporary housing until you’re able to find a new one. This will cost a lot of money and will be an inconvenience. However, a bridge loan can keep you from having to do an interim move.
Disadvantages of Bridge Loans
The primary disadvantage of bridge loans is that they often have a high-interest rate and fees. Plus, there’s the issue that a bridge loan is a short-term option, typically no more than a 1-year term. You may feel stressed over having to pay it back quickly, especially if your home is taking longer to sell than you planned.
Even if you feel like paying it back won’t be an issue, there’s the possibility of unexpected expenses coming up and ruining those plans. Having to pay two mortgages can be stressful, regardless of your economic situation.
Additionally, not everyone will qualify. You must have decent equity in your current home and a stellar credit rating to be considered.
Finally, bridge loans are a niche/specialty product, so not all lenders offer them. You may be forced to find a different lender to work with. Of course, you will want to ask your primary lender first and if they don’t, maybe they can point you to a lender that does.
Is a Bridge Loan a Good Idea?
There is no definitive answer to this question because it depends on a variety of factors, such as your financial and living situation, the current economy, and so much more. A bridge loan can help you if you find the house of your dreams and want to make an offer or if you need to move quickly. However, the payment terms and interest rates, and fees may be difficult.
Contact Crimson Stone Capital Solutions to go over the advantages and disadvantages of bridge loans for your specific situation. We will be happy to help you find a solution that will work.