what is bridge financing

Do you want to sell your current home and use the proceeds as a down payment to buy a new construction home? What if the closing dates don’t fall on the same day? Or what if you have to finalize the purchase of your new home before you complete the sale of your old one? The answer is a bridge loan! So if you’re considering this option, we’ll break down what you need to know in this post.

What Is a Bridge Loan?

First, what is a bridge loan? It’s a temporary loan, secured by your existing home that bridges the gap between the sales price of your new home and the homebuyer’s new mortgage, in the event your current home hasn’t sold before closing. It allows you to meet current obligations by offering immediate cash flow. Bridge loans are only good for up to one year, they have relatively high-interest rates, and they’re typically backed by some form of collateral, like real estate.

What are The Pros?

There are several pros to using a bridge loan! First, it can help you purchase your new construction home before you sell your current one. It gives you peace of mind and flexibility by providing additional time to sell your existing home. A bridge loan enables you to use the equity in your current home for a down payment on your new construction property, and it can give you the funds to choose upgrades on your new construction home during the building process! 

What Are The Cons?

Of course, bridge loans come with a few cons too. These include the fact that a bridge loan can vary widely in terms, costs, and conditions. Bridge loans can be higher risk because you’re taking on a new loan, usually with a higher interest rate and no guarantee that your existing home will sell during the loan’s term. These loans also have a higher interest rate than conventional financing, but the shorter loan term can help offset the cost.

How Can I Qualify for Bridge Financing?

Fortunately, qualifying for a bridge loan is simple! You need a copy of the Sale Agreement from your current home and the Purchase Agreement for your new home. However, if you don’t have a firm selling date, you may need to consider a private lender for the bridge loan, because most banks and traditional lenders require a firm selling date for you to qualify.

The bottom line is bridge financing can be instrumental in purchasing a

Your new construction home. Most institutions are comfortable lending up to $200,000 for as long as 120 days. That’s usually enough for a substantial downpayment on your brand new property while you wait to sell your current home. Once you’ve sold your home, you can use the profit to repay your bridge loan. For more information about mortgages, homes, and our community, read our blog!

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