Is the sale of your current home holding you back from buying your dream home?
A bridge loan may be the answer. A bridge loan is a unique type of financing that comes in handy when you want to buy, but you’re unable to sell before the contingency deadline.
It bridges the gap by wrapping financing for your old home and the down payment for your new home into one short-term loan. When your old home sells, you use the proceeds to pay the short-term loan off. Then you get a separate mortgage for the new home, usually with the same lender who handled your bridge loan.
Atlantic Coast Mortgage is one of very few lenders that offer this option for financing. Let’s discuss some things to consider about the bridge loan and if it’s the right loan for you.
A bridge loan is riskier than a typical loan because you’re making payments for two houses, plus your ability to pay the loan off depends on the sale of your old home.
For these reasons, the best candidates for bridge loans have a history managing credit responsibility. An excellent credit score (740 or above) is ideal when applying for this type of loan.
In addition, applicants should have a debt-to-income ratio below 50%. This is where some homebuyers may have trouble qualifying. Juggling expenses for two houses while keeping a low debt-to-income ratio may be a challenge even for high-income homebuyers.
Reach out one of our loan officers if you’re interested in pursuing a loan to finance the gap between your old home and future dream home. We can go over your financial situation to see if you qualify.
You can’t predict when a new home will catch your eye and a bridge loan will help you jump on it before someone else does.
With that in mind, there are a few factors to think about before deciding on a bridge loan. You should be fairly confident a sale will happen on your current home in a short time frame. Otherwise, you can encounter financial strain managing payments for two houses longer than you anticipated.
Using a bridge loan is convenient, but it will cost you more than buying a home in the traditional way – selling before buying.
Often, bridge loans have interest rates a few points higher than a standard loan. Bridge loans also come with fees like closing costs. When your old home sells and your bridge loan is paid off, you’ll need to get another mortgage for the new home which results in more closing fees.
If you choose Atlantic Coast Mortgage for your bridge loan and your next mortgage, we’ll work together to create loan products you can afford. You don’t have to miss out on a house you want to buy.
Interested in learning more about your mortgage options or prequalifying for a home loan?