If you’re selling your home and looking for a new house, you may find a property that you want to purchase before you find a buyer for your current one. It may be difficult or impossible to continue to pay the mortgage on your current home and come up with money to put a down payment on a new one. A bridge loan can help.
Why Should You Consider a Bridge Loan?
If you find a house that you love and want to buy, but you haven’t sold your current home, that can be problematic. You’ll need to make a down payment, but you won’t have money from the sale of your current house available.
Sometimes a seller will accept a contract with a contingency – known as a “Hubbard Clause” – stating that the transaction will only go ahead when the buyer’s current home is sold. If a seller is anxious to proceed, or if it’s a seller’s market, a seller may refuse to agree to such a contingency.
If you take out a bridge loan, you will be able to make a down payment on your next home before your current one sells. That can give you financial flexibility when you’re confident that your current house will sell, but you just don’t know when.
How Does a Bridge Loan Work?
A bridge loan is usually taken out for a period of six to 12 months to help a borrower finance the purchase of a new house before the old one is sold. A bridge loan uses a current property as collateral. Bridge loans typically have higher interest rates than other types of home loans, but that may not be a deterrent since the term of a bridge loan is so short.
You may be able to keep your current mortgage and borrow an amount equal to a portion of your home equity to put toward a down payment. You will have to continue to make payments toward your current mortgage until you sell the house. At that time, you will be able to pay off both the mortgage on your old home and the bridge loan.
Another option is to take out a bridge loan to roll together your existing mortgage and a mortgage for a new home. That will allow you to pay off your current home loan and make a down payment on a new house.
Make a Contingency-Free Offer with a Bridge Loan
Many people find themselves in a quandary when they want to buy a new home before their current house has been sold. If you’re in that situation, Sachem Lending may be able to provide a bridge loan so you can make an offer without a contingency regarding the sale of your current home. Contact us today to learn more!