BuyersSellers June 17, 2024

Buy Before You Sell: Bridge Loan FAQs

If you’re a homeowner thinking of selling in order to buy a new home, you may want to consider using a bridge loan. Curious about the positives and negatives of this financing option? Read on to find out. We’ve answered your frequently asked questions below.

What is a bridge loan?

As a homebuyer, a bridge loan allows you to borrow a portion of the equity in the home you already own as a down payment on a new house. Similar to a home equity loan, bridge loans are secured with your current home as collateral. They typically have shorter terms and last up to one year. Borrowers often combine the bridge loan with their existing mortgage, borrowing the difference between what they owe on their current residence and a percentage of the home’s value.

What are the pros?

The bridge loan provides immediate cash flow, expediting the transition from one house to the next. Compared to a standard mortgage, the application and approval process for a bridge loan are typically streamlined. It enables you to make an offer on a new property without a home sale contingency. This can be particularly advantageous because sellers often prefer offers without contingencies, making your bid stand out among the competition.

What are the cons?

Bridge loans often come with higher interest rates vs. traditional mortgages. If your home doesn’t sell within the designated time frame, you might find yourself responsible for paying the mortgage on your current home, the mortgage on your new home, and the bridge loan. To qualify for a bridge loan, you’ll need a low debt-to-income ratio, a strong credit score, and significant equity in your current home. For this reason, it may be challenging for some homeowners to qualify.

What is the Windermere Bridge Loan?

Windermere offers an exclusive bridge loan program for clients. Our local real estate agent’s expert guidance, coupled with our program, can give you a stronger negotiating position. You don’t want to miss out on your ideal home because you have to wait for your current home to sell. When assessing qualifications for our bridge loan, Windermere looks at what you owe on your property plus the bridge loan. These two loans combined cannot be more than 75% of your current property’s value. This helps determine the amount of the qualifying bridge loan. If you’re worried about expediency, the approval process for a Windermere Bridge Loan takes just a few days.

Our Windermere agents have seen the success of this program. As a buyer in this program, you have no monthly payments for 6 months or until you sell the collateral property. It is a seamless process and no appraisal is involved on the property being purchased.

What are the alternatives?

Home equity loans, home equity lines of credit (HELOCs), and personal loans are all alternatives to bridge loans. They offer various ways to finance your new home purchase. Before you make your decision, carefully compare the costs and terms associated with each financing option.

Additional Information

For additional information, check out our guide to buying a home and our guide to selling a home. If your current home needs repairs or upgrades before putting it on the market, consider the Windermere Ready program. Windermere Ready provides an upfront investment of up to $100,000 to help your home sell for more. Also, here is some helpful information about the home-selling process. As always, if you have any questions, please reach out to one of our real estate professionals.