A bridge loan, also known as a transition loan, offers you the opportunity to present an offer to purchase that is not contingent upon selling your current home. It is a great option if you can afford a new home but don’t have enough cash on hand to complete the sale, or don’t want to take money from your 401k and face paying the money back with interest. A bridge loan is especially helpful in today’s seller’s market, where competition is fierce, and sellers are looking for the best overall offer. If you can remove the home-sale contingency, often viewed as the hardest hurdle to selling a home, it gives a huge boost to an offer. Such an offer assures the seller that you can purchase the house without having to sell your current home. It also protects you – should your home not sell by the closing date in your offer, without a bridge loan in place you could very well forfeit your escrow money.
In order to get a bridge loan, you will need to put up collateral. Usually the equity in your current home can be used as the asset, or collateral. Lenders usually require at least 20% equity in the current property to approve a bridge loan.
As with any loan, there are associated risks. Bridge loans have higher interest rates and fees than conventional mortgages. Since they are short term loans, the lender will charge a premium rate in order to make up for at least some of the money that would otherwise be made on a longer-term loan. And with the shorter repayment term, there’s always the risk that your home won’t sell before you need to pay the loan back. Of course, working with The Carroll Group means your current home will sell, quickly and for top dollar!
Be sure to meet with multiple lenders to find the bridge loan agreement that works best for your situation, and keep in mind that not all lenders offer bridge loans. We are happy to share contact information for lenders with whom we have worked who offer bridge loans.