Your family goes for a Sunday drive through a favorite neighborhood, and you pass by an old favorite: the brown Tudor with the two-car garage that’s set back on a huge wooded lot. A little sign in the front yard reads, “For Sale,” and you stop in your tracks.
You haven’t sold your current home. Heck, you haven’t even fixed that hole in the wall you’ve been putting off. You’re not ready to sell your current home, but that Tudor is everything you’ve ever wanted. You can’t afford to buy the new one without selling your old one first, but you can’t wait until you sell it because your dream home will be long gone by then.
You might think you have no other option than to simply accept the fact that you’ll never own that perfect Tudor. Maybe another dream home will come along after you sell your current house, you think. However, you do have another option if you have your heart set on your perfect home: a bridge loan.
What’s a Bridge Loan?
Most people assume that they can’t make an offer on a new home before they sell their current house because they want to avoid potentially ending up with two mortgages. The problem with waiting, though, is that you risk losing that rare opportunity when you do find that perfect home.
Bridge loans structure a single lower payment over a short period (usually six to nine months) in which only the interest covering both properties is paid. This buys the customer time to close deals on both sides, and you’re paying less per month than you would if you had two mortgages to cover.
Once the old home is sold, the bridge loan can be paid down — without penalty, even if it happens sooner than six months — and the remaining amount of the new home is refinanced into a new regular loan, like a 5-1 ARM or a 30-year fixed-rate mortgage.
Bridge loans also give buyers a competitive advantage when making an offer on the dream house because the bid isn’t contingent on needing to sell the current house. Sellers appreciate aggressive offers with as few strings attached as possible; being tied to your current house could put your dream in danger.
These types of loans also allow customers to avoid having to move twice; temporary lodging for your family, along with the hassle of having to put your belongings in storage, is not required.
Who Makes a Good Bridge Loan Candidate?
Bridge loans aren’t right for everyone, and there are a few criteria that candidates must meet if they want to qualify.
First, you’ll need good credit and a reliable, steady income. You’re essentially getting a short-term loan to cover two homes, so if you have less-than-stellar credit and are barely able to pay your bills each month, it might be tough to prove to a bank that you can pay back the loan.
Also, you’ll typically need to have at least a 25 percent equity stake in your current home. At The Callaway Bank, when we put together a bridge loan for a customer, we look for the combined loan to be no more than 85 percent of the value of both properties.
Think a bridge loan might be the right option for you? To get started, discuss your situation with one of our lenders for more information. You can also fill out this quick and easy online form on our website to get a free home loan quote.
Buying a home is no easy task — especially if you hadn’t even considered moving until you saw that your dream home was for sale. But selling your current home could take weeks (or months), and you might not have that much time before the house you have your sights set on gets snatched off the market. Fortunately, you have options. Especially with a community bank like The Callaway Bank, you have a variety of loan options to fit your particular needs and ensure you end up with the house of your dreams.
The Callaway Bank is an Equal Housing Lender.