You’ve found the perfect home. It has enough space for your family, it’s in an amazing school district, and even has an extra bathroom--since your spouse or oldest child won’t stop hogging yours. But there’s just one drawback: you need to sell your current home before you can buy it.
If you have to sell your current home first, your dream home will be gone. If you buy your dream home before selling your current home, you may be making two mortgage payments each month. What do you do?
If you’re like most people you probably don’t want to have two large mortgage payments. This is where a bridge loan from Arbor Financial Credit Union could make sense for you.
What is a bridge loan?
A bridge loan is a mortgage with a term up to 12 months and interest-only payments. Our bridge loan is designed to help prospective home buyers that do not have cash savings for a down payment, but want to get into that new home quickly. A bridge loan lets you use the equity built up in your existing home as a down payment on your next home.
Current market conditions have created a need for bridge loans. There are few homes for sale and those that are for sale sell quickly. Many buyers miss opportunities because they do not have liquid assets. Accessing the equity in your home may be the perfect solution.
“A lot of sellers in a competitive market aren’t accepting offers on their home if it’s contingent on (the buyer) selling their home first,” explained Arbor Financial Mortgage Loan Specialist Ryan Maneke. “Because it just causes more concerns with them having to wait on selling their house.”
How does a bridge loan work?
We will order an appraisal on your current home to determine the value of your property. With a bridge loan you can borrow up to 80% of your home’s equity, referred to as loan-to-value ratio, or LTV. The equity is calculated by using the appraised value and subtracting any current mortgage or HELOC balance. You then make interest only payments on the mortgage. Making interest only payments keeps your payments lower and manageable. The goal is to sell your home within a year and when you do the bridge loan is paid off.
What are the benefits of a bridge loan?
The biggest advantage to a bridge loan is your ability to put your home on the market and buy with no limitations. You will be able to make an offer on your dream home without any contingencies. This will give you a much better of chance of having your offer accepted.
With a bridge loan you can avoid costly private mortgage insurance when you have a 20% down payment for your new purchase.
Additionally, there are unique situations where you could wrap up your current mortgage into a bridge loan to help reduce the debt to income ratio, allowing you to qualify for a new mortgage. For example, let’s say you owe $20,000 on your first mortgage and your monthly payment is $2,000. You could finance the $20,000 plus the amount you want to take out for a down payment and wrap it into the bridge loan making one, low, interest only payment, keeping your debt to income ratio low.
Where do you start?
The first step in seeing if a bridge loan is right for you is by contacting one of Arbor Financial's mortgage experts. We want to understand your needs and create a solution that is right for you. Your dream home is just a call or click away.