Buying a home is always a bit harder when you have to sell your old home first. So often, you have to rely on the money you earn selling your old home in order to make the down payment on the new home. If everything does not line up perfectly, time-wise, this can be problematic. A bridge loan can help. This type of loan pays off your old mortgage so that you can access the equity in that first home and put it towards the purchase of your new home. If you're in a situation where you might need a bridge loan, here are some questions you're likely to have about this financial product.
When do you need to take out the bridge loan?
Most people take out a bridge loan as soon as they know they'll be shopping for a new home. This way, they can have the cash in-hand by the time they start house hunting. This enables them to make a contingency-free offer when they do find a home they'd like to buy. In other words, instead of making an offer contingent on the sale of their old home, they can just make a clear offer, using the money from the bridge loan as a down payment.
When do you pay off the bridge loan?
You're meant to pay off the bridge loan as soon as your old house sells. In fact, if you work with a real estate lawyer, they can set things up so that the money from the sale of your home goes directly to the bank that holds your bridge loan. The amount you pay will be equal to the amount you borrow, plus interest.
How soon after taking out a bridge loan do you need to sell your home?
This depends on the terms of the bridge loan. Many bridge loans have a payback period of up to one year. If you do not find a home to buy within that time, you can sometimes extend the loan, but you will pay extra fees and interest to do so. On the other hand, if you're confident you'll find a home very soon, you may save money with a bridge loan with a shorter term, like 6 months, since these tend to come with lower interest rates.
With these questions answered, you should now be more prepared to take you a bridge loan and buy your new home. Contact a lender that offers long-term bridge loans to learn more.