Bridge loans are an important tool to keep the real estate industry moving. Without them, many home sales would be extremely difficult, as financing from one home to another creates issues for both the buyer and the seller.
When you start to search for a home, you may find that financing for the new property is contingent on selling your old property. Lenders don’t want to write loans to people with multiple mortgages to pay, so they may require that you sell your home before purchasing a new one. But this can create a log jam of home sales as one buyer waits on another, who is waiting on another, who is waiting on another…
Fortunately, bridge loans are available to help you go from one home to the next without an added contingency. By bridging the gap from one house to another, bridge loans are a tool that allows the real estate market (and your move) to continue.
While bridge loans may not be for everyone, they have distinct benefits that make them ideal for many borrowers across the country.
Bridge Loan Financing: How to Use this Important Financing Option
The Basics of a Bridge Loan
A bridge loan is a loan that simply helps you buy a new property without selling your current property first. It’s a short-term loan that you can use to “bridge” the gap from one house to another. Although the term can apply to many forms of financing (auto loans, for example), for this conversation we are talking entirely about buying one house while still trying to sell another.
They are temporary loans with terms that usually last about 6 to 12 months, enabling the buyer to make an offer on a new home without their offer being subject to the sale of their existing home. This gives you far more flexibility when you are searching for a house, allowing you to shop for a home without having to generate substantial cash.
A bridge loan can also be designed to pay off the entirety of the existing liens on your current property, or it can be a second loan that is added to your existing debts. Eliminating these liens also has benefits for many home buyers.
Why Choose a Bridge Loan?
Obviously bridge loans are not required for every purchase. However, there are some distinct situations that may call for a bridge loan. The first, and more common, it to solve the sell-before-you-buy logjam. This is convenient for buyers who want to avoid the stress of trying to close on two properties at the same time. With a bridge loan, you can make a non-contingent offer, which means that even though you have a house that you are living in and making payments on, you can go ahead and buy another property that is not contingent on other factors. You can close the deal, and not have to make any payments on the new property until your home is sold.
Bridge loans can be useful in a competitive market where sellers may not be willing to wait for a contingency sale. When a seller has lots of offers, they will likely choose one that sells the home right away; if you are making a contingency offer, they may choose a different buyer, even if yours is higher.
It can also be useful if you foresee any issues selling your home. Perhaps you need time to make the house ready for the market; in this case a bridge loan could help you move into a new home and make changes to your old before selling.
What You Can Get from SDPL?
At San Diego Purchase Loans, we are proud to offer a wide variety of home-financing products that make the buying process simplified and easy, including bridge loans for those who need them. Working with our team, you can get a 12-month bridge loan that significantly reduces the qualification process. You will only be asked to provide proof of asses or income for the first 12 monthly payments, giving you greater access to this loan option.
For these bridge loans, we can offer a $1 million minimum and loans up to $25 million to help you finance your next purchase. Even in a high-priced market like San Diego, this gives you significant buying power that is unmatched by many other lending options.
It’s available for single-family homes, as well as properties with up to four units. It can also be used to purchase primary residences, as well as second home and investment properties if needed.
Basic Eligibility Requirements
To be eligible for this bridge loan, you will need to have a credit score of 680 or better, as well as a debt-to-income ratio of 55% or less. Debt-to-income is important to lenders, as it helps them determine whether or not you are taking on too much debt for your incoming finances. Statistically speaking, this is one of the best factors for measuring risk when it comes to lending practices. Also, the property you are purchasing must be listed on the Multiple Listing Service, which is a essentially an official database of available homes and commercial property.
Do Bridge Loans Have Higher Interest Rates?
One of the issues that keeps some people away from bridge loans is the potential for higher interest rates. However, these home-loan options may not have interest rates that make the loan unattainable, especially when you consider that the loan itself is for a short period, meaning you won’t pay the higher interest rate for very long, and it won’t compound for decades like a typical mortgage loan, such as a 30-year fixed.
While the rates can be about 2 points higher, if you have excellent credit, a strong DTI, and a relatively small loan, the interest rate may not be as bad.
Helping You Bridge the Gap from One Home to Another
If you have an upcoming move, it never hurts to talk with a lending professional to learn about bridge loans. Let our staff show you the details of this and other options so you can make a wise decision on your next purchase.
“Hi Juliann and Chad, I wanted to take a moment and thank you guys for what would have been impossible for us to do without you. We wouldn’t have our keys in hand if it had not been for your help in navigating the financing, and Juliann’s perseverance in getting the rest of the players in the transaction to deliver. Out of everything, our interaction with your office has been a highlight – and your customer service has been beyond everything we’ve experienced in the real estate industry. Is there a way we can provide any reviews, ratings, testimonials, or other statements that can express to your potential future customers how much you guys do to make the customer’s life easy? Please let us know how we can share our great experience with you to the rest of the public. Whether we refinance this under a VA, or get in a bigger/better house in a few years, we’re not going to go anywhere else for financing. We are customers of yours as long as you are in business. Thanks again for getting us in a house!”
“Chad and his team got me funded in less than 30 days, completing a deal that another broker fumbled around with for almost 90 days. Effective, efficient and excellent communication skills. Outstanding professionalism.”
“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”