Bridge Loans Explained

By Andrew Mroki, Mortgage Loan Officer

The idea of purchasing a new home while also trying to sell your existing home can seem impossible, but it doesn’t have to be. You might wonder, “how can I save for a down payment on top of my current mortgage?” A bridge loan allows you to borrow against the equity of your current home to leverage as a down payment for a new home. Once your current house sells, the bridge loan will be repaid with the proceeds. Think of this option as a bridge to get you out of one house and into your new dream home.

A bridge loan might seem like the perfect solution but here are some things that you need to keep in mind.

Pros:

  • Funds from the equity of the current home can be used for a down payment on a new home
  • Using funds from an existing home to cover closing costs on a new home
  • Payments have the potential to be deferred until an existing home is sold
  • The ability to present a stronger purchase offer

Cons:

  • Possibility of two mortgage payments if there are no interested buyers or a potential buyer’s financing falls through
  • Payments aren’t always able to be deferred until existing home is sold
  • May not qualify to own two homes

It’s important to note that homeowners looking to get a bridge loan should have a strong credit history and a good source of income to be able to handle multiple mortgages for a period of time. Bridge loans are great to have available for those who can take full advantage of them. Being able to take equity from an existing home to put towards a new home opens an avenue of possibility for many. Having strong credit history and a steady income is important because for a short period of time, you will have your new mortgage, along with the bridge loan that you will be responsible for paying. It is not always the easiest process when trying to simultaneously sell your current home and purchase one at the same time, but bridge loans can make the process a little easier.

If you think a bridge loan is a good solution for you, contact our team at 877.312.9033 to discuss your options.