Dane County’s Spring Real Estate Market is here! We are on year three of lack of inventory in homes for sale, which means it is going to be another year of a strong seller’s market. When homes do get listed for sale, it does not take long for that property to go into contract and thus on its way to a successful closing. It is great being a seller right now, however as a seller, what are you going to buy?
To avoid the stress of being homeless, one strategy to consider implementing is purchasing the new home first without listing your home. To accomplish this, a bridge loan can be used.
A “bridge loan” is basically a short term loan taken out by a borrower against their current property to finance the purchase of a new property.
Also known as interim financing, a bridge loan is typically good for a six month period, but can extend up to 12 months. It is usually an interest only loan and can be lower than long term fixed rate loans.
How Do Bridge Loans Work?
A Bridge Loan can be structured as a second mortgage on the homeowners primary residence on top of the existing liens The bridge loan is opened as a second or third mortgage, and is used solely as the down payment for the new property.
You’ll still need to make payments on your old mortgages and the new mortgage attached to your new property, which can stretch even the most well-off homeowner’s budget. So make sure you’re able to take on such payments for up to 6 months if necessary. Your mortgage lender can help coach and review your financials to confirm this is a good decision to make.
What Are The Benefits of a Bridge Loan?
- The ability to slowly move into the new property and make one move, as well as alleviates the stress of selling and buying in the same day.
- Not being subject to sale contingency, which will help in the negotiations when competing against multiple parties on the new home purchase.
- Time and patience to hire an experienced realtor to help you find your dream property in a seller’s market.
- The option to use the equity in your existing home in lieu of a cash down payment on the new property.
If you think a bridge loan is right for you, work with a local lender that provides both your bridge loan and long-term mortgage. Usually they’ll give you a better deal, and a safety net as opposed to going with two different banks or lenders.