If you’ve spent much time looking into the best ways to buy and sell a home at the same time, you’ve probably seen people mention something called a bridge loan. Often, real estate agents and lenders will talk about bridge loans as a solution to the problems that face move-up buyers, because they bridge the gap between your two properties.
Bridge loans can, indeed, be a great option for move-up buyers. If you employ them wisely, you can gain a lot of financial flexibility in your home search. If you don’t (or can’t) use one of these unique loans, you might have to narrow down the parameters when looking for a new home to exclude more valuable properties.
Like many aspects of buying and selling real estate, the true value and usability of a bridge loan will depend on your personal situation, needs, and means. So if you want to get the best information possible on whether a bridge loan is for you, click here to schedule a time with the move-up buying experts of the Keri Shull Team to talk about your financing options.
What is a Bridge Loan?
At its core, a bridge loan is quite simple. It’s a financing option that allows you to use the equity in your current home to pay into the mortgage on your new home. This means that you don’t have to wait for your current property to sell in order to liquidate its value.
It is important to note that bridge loans are temporary financing options. Unlike longer-term loans, they are not designed to exist for years (or decades). The money that you borrow in a bridge loan is intended to bridge the gap between your closings, so you can confidently make the decision to move up from your starter home to dream home.
Basically, bridge loans are tools to give you more control over the timeline of your home purchase and sale. When you have the flexibility afforded by a bridge loan, you can spend more of your precious time finding your dream home, instead of being stuck to a strict schedule based on your home sale.
With that in mind, bridge loans are not always the best option for a move-up buyer, depending on each family’s situation. Here are some of the most prominent pros and cons of bridge loan programs.
Pros to Bridge Loans
The main benefit of getting a bridge loan is, as mentioned above, the financial flexibility they can give you. If you are able to borrow against your current home’s equity, you generally have more options and freedom in your home search.
The other main pro of a bridge loan is that a creative real estate agent can use them to make your home purchase offer more compelling. Because bridge loans allow you to borrow against your current equity, you might be able to remove certain contingencies on your offer and win a home without being the highest bidder. However, this is a decision that you should make with your real estate agent — because it will depend on your personal situation and needs.
There are some downsides to bridge loans that might lead you to consider other creative financing options, however…
Cons to Bridge Loans
Bridge loans are usually more expensive than standard home equity loans. According to SoFi, the interest rate on a bridge loan tends to be around 2% higher than market rates for 30-year loans — so bridge loans can prove risky if you are not able to quickly pay them off with a home sale.
Another con of a bridge loan, therefore, is that they are only a good idea if you are able to quickly sell your home. Otherwise, the interest can balloon. If you aren’t able to sell your first home for a long time, the stress of having your new home equity loan plus the bridge loan could quickly grow.
The other common downside of a bridge loan is that you have to be able to qualify for both homes at the same time. While this is certainly possible, it means that bridge loans are much rarer than traditional loan types. Especially in growing markets like DC and Arlington VA, it could be hard for many people to be qualified for both loans at the same time.
Is a Bridge Loan Right For Me?
Ultimately, it is hard to determine whether or not a bridge loan is a right option for you unless we know more about your needs and means. That is why we suggest that you contact the Keri Shull Team today and schedule a time to meet with one of our move-up buying experts. We will walk you through your financial options and the benefits of working with us and put you in touch with mortgage lenders that offer bridge loans like one of our local partner’s First Savings Mortgage to take the next steps.
There are, of course, many creative options that you can take to finance your move-up buying situation — we’d love to speak with you so we can figure out which one is best for you!
Disclaimer: The above content is intended for education only; it is not meant to be financial advice. For a personalized consultation of your financial options, please contact us at (703) 436-2191.