What is a Bridge Loan, and Could It Be Right for You?
If you’re in a pinch to move into a new residence before your current home sells, ask me or your mortgage lender about a bridge loan. This is a loan that allows you to borrow against the value of the property you currently own in order to close on your future residence. Does that sound like a dream come true? For most people, especially those who need to relocate on short notice, it’s an ideal offer, but it’s not without its risks. Let’s take a look at the ins and outs of bridge loans and whether or not this mortgage type might be right for you.
How Does a Bridge Loan Work?
Underwriting for bridge loans tends to be much more subjective than other mortgage types. It’s all about whether the total picture makes sense. How likely is it that your current home will sell quickly? If it does not sell quickly, how long will you be able to sustain two mortgage payments? Some lenders may exclude your bridge loan payment altogether from your mortgage qualification criteria. So, as you can see, it’s much more complex than your typical FICO score meets debt-to-income scenario.
The type of loan you choose also has a lot to do with it. For example, if your new mortgage is going to be a jumbo loan, you may face more restrictions than you would if you were applying for a conventional loan.
What You Should Know About Bridge Loan Interest
Besides the typical mortgage rate fluctuation, you’ll find variances from one lender to the next. That’s why it’s important to shop around for a bridge loan in the same way you would any other mortgage type.
You should also know that while your bridge loan may offer a grace period (usually 3-4 months of no payments), interest does accrue during this time. That money becomes due immediately upon the sale of your previous home, so if your budget for how proceeds will be spent is tight, you should take this into careful consideration.
In general, bridge loans are an excellent solutions for many home buyers and sellers today. As long as you enter the process will plenty of information, you should be just fine. If there’s anything that I can do to help you with your relocation to Chicago, including understanding the available loan products or referring you to a preferred mortgage lender, don’t hesitate to contact me at [email protected]!