In today’s hot seller’s market, buyers with home sale contingencies are at a disadvantage. They can’t get their offers accepted. Sellers prefer non-contingent contracts because they are more likely to close.
If you want to sell your home and need the proceeds of that sale to buy a new one, bridge financing may be a great option for you.
Bridging the Money Gap to Buy without Contingencies
Bridge financing allows you to tap into the equity of your home. It provides the cash you need to buy before you sell.
Here are three types of bridge financing that will enable you to buy without contingencies:
- Bridge Loan
This is a short-term loan secured by the equity of your current property. You can use the proceeds as the down payment for your new purchase.
The bridge loan is paid back when you sell your old home.
- Blanket Loan
This loan covers both your current property and your new house with a single loan secured by both properties.
In this case, your old mortgage is paid off and replaced with the blanket loan. When you sell your old home part of the blanket loan will be paid off and the loan will be converted to permanent financing on your new property.
- Home Equity Line
You can use an existing home equity line of credit (HELOC) for the down payment on your new house. However, lenders won’t approve a new HELOC if you plan to sell.
Requirements for Bridge Financing
Lenders have different requirements. Here are the most common rules …
- Equity. You need more than 20% equity in your current home. Most bridge lenders allow you to borrow up to 80% of the equity. This means the balance of your current mortgage must be lower than 80% of its appraised value.
- Debt to Income Ratio. Like with all loans, debt payments can’t exceed a certain ratio. Fortunately, bridge loans often do not require monthly payments for the first year.
- Refinance. Your bridge lender will require that you refinance with them after you sell your old home.
How Much Equity Do You Have in Your Home?
Let me help you figure out how much equity you have available in your home with a Professional Equity Analysis Report (PEAR).
A PEAR is more than a simple home valuation. It will show you how much your home is worth in today’s market, how much equity you have available based on the payoff of your mortgage, and how much you will likely net when you sell.
Reply to this article to request your PEAR!
Need a list of experienced Bridge Lenders? Call or text me TODAY at (614) 975-9650.
Susanne Novak has been a Realtor since 2007. She is the broker and owner of RE/MAX 24/7 in the Dublin Historic District. Susanne typically helps 50-60 families each year with their real estate needs. She's your trusted advisor when you search for your dream home, and a skilled negotiator when she lists your property to get top dollar when you sell.