If you need to finance a new home purchase, but have not sold your existing home and do not want to or cannot make a contingent offer, a bridge loan may be the solution you’re seeking.
Understanding Bridge Loans
Bridge loans are also referred to as gap financing or interim financing. They allow you to “bridge the gap” between the time when you need to finance the purchase of a new home and the time you have access to cash from the sale of your old home. Approval of a bridge loan and the amount you can borrow is based on the amount of equity you have in your existing home. It gives you cash now to purchase a new home before your existing house has sold.
Why Would I Want a Bridge Loan?
Selling a house can be a balancing act. There is almost nothing as stressful as the prospect that you might not have the cash to close on the house you want to purchase while you wait on pins and needles for your current house’s sale to close. In some cases, sellers may not even accept or entertain contingent offers, and this is especially true in competitive housing markets, where sellers do not need to accept the risk that a house sale may not go through.
But if you put your house on the market first so that you have the cash in hand to buy, you may find yourself without anywhere to go if you have to move out before you have found a house to purchase.
With a bridge loan, you can avoid these problems. A bridge loan gives you access to your equity funds now.
When you decide you want to sell your current house, you can put a bridge loan into place, and begin searching for a new one. You can take time to find the one you want, without the pressure of having to put your own house on the market. When you do find the house you want, you can make an offer on it, knowing that the financing is secure. When you put your old house on the market, you know you have a place to move into, and the bridge loan eases the time pressure on selling, which can sometimes force you into accepting a low offer.
Compared with traditional loans, bridge loans have a faster application process, shorter approval period, and quicker funding process. Bridge loans are intended to be short-term, and usually have only a six or 12 month term. As a result, interest rates are generally higher than with conventional 30 year mortgages, and you will have to pay points, or fees, to the lender to trim the interest rate on the loan. However, many people feel that the higher rate and loan fees are compensated for by the flexibility and peace of mind that bridge loans provide when deciding to move.
You should also bear in mind that, until you sell your old house, you will need to continue paying your current mortgages, including any first mortgage you already have, the bridge loan, and the mortgage on your new house. In fact, many people will use part of their bridge loan proceeds to make sure they can cover two mortgage payments for a short period of time. Typically, borrowers do not have to make payments on the bridge loan until the old house has sold, at which time those funds will be used to pay off the bridge loan.
Making the Loan Process Easier Than Ever
At Portage Bank, we offer fast underwriting approval and quick turnaround times for loans on owner-occupied properties, so you will quickly find out how much money you can access with a bridge loan. As you go through the process, you will work with a single point of contact, from the pre-approval process all the way through to closing, to make the process as straightforward and efficient as possible. We know you need funds quickly. At every step, our goal is to provide you with access to your equity.
The Portage Difference
Portage Bank has been serving the public since 1901. We stand on our reputation for unrivaled customer care, and continue to be committed to our historic core values of personal service and community commitment. As our banking community has grown and changed over the last 120 years, so have we, adapting to meet our client’s needs in today’s financial environment. If you are interested in finding out whether a bridge loan is the right vehicle for you to help you finance your next home purchase, contact Portage Bank today.