Bridge Loans: How to Buy a New Home before Selling Your Current One

If you're reading this, you're probably curious about what a bridge loan is and why you've never heard of it before. You're not alone - many people don't know about this helpful loan, which is why we've outlined the basics. If you're interested in how to buy a new home before you've sold your current one, keep reading.

What is a bridge loan?

A bridge loan is a specific loan for homebuyers. In most cases, a household income can't afford two mortgages at once, thus forcing people to sell their home first before buying a new one. That is not always the best option, so that's where a bridge loan comes in handy. It allows you to keep your current home and use a bridge loan to afford the home you will eventually move into.

How exactly does this loan work?

Suppose you need to make a move. Maybe you've outgrown your current home, you need to relocate for work, or maybe you finally found the dream home you've been searching for. A bridge loan can allow you to use your current home's equity to put a down payment on your new place. Once you've finally sold your current home, you can take those earnings to pay off the bridge loan and refinance your new home with a more desirable interest rate.

What are the pros vs. cons of a bridge loan?

Pros: In this market, houses are selling very quickly. With a bridge loan, you don't have to wait to make an offer. You can have the funds readily available instead of relying on a financing contingency (meaning your offer is contingent on when you sell your current home). Most sellers are discouraged by a continency offer such as this, so a bridge loan allows you to avoid this and increase your chances of securing your new home.

Cons: The goal of a bridge loan is to provide a short-term financing solution, therefore the interest rates can be higher than other mortgage loans. So if you cannot sell your home as quickly as you expect to, you may run into an unfavorable situation.

Now that you know the basics of a bridge loan, you will be ready to make your move whenever the time comes! Talk to Telhio's team of loan experts to get started.