Borrowers who find themselves “between” properties (trying to sell one and buy another at the same time) may have heard about bridge loans. Though the term may be familiar, many homeowners are not familiar with what bridge terms actually are, what they cover, or how to qualify for one.
Let’s examine bridge loans and how they benefit borrowers who are looking to sell a property in order to move into another.
A bridge loan is a quick, simple lending option for individuals who need cash and own properties that have a lot of equity. These loans allow borrowers to take a loan out against the property they own. They then use this bridge loan to purchase additional property. Once the new property has been secured, the property used for the loan is sold and the sum is used to pay off the loan.
When Would I Use One?
Bridge loans are best used when a property owner plans to move from one residence to their new home. It’s a short-term loan that takes care of the “in-between” time when a person is transitioning between two living arrangements.
Though they are helpful during this time, traditional lenders do not often offer bridge loans. Instead, people who are planning to sell a home and buy another at the same time should visit a hard money lender or private lender.
How Do I Qualify?
Bridge loan qualification is usually based on the equity of the property that’s to be sold later. A lender will usually lend up to 70% of what the property is worth after verifying the borrower’s income and ability to make the bridge loan mortgage payments.
Often, a borrower’s credit score is not as important as it is with other loan types. This is because bridge loans are automatically paid off when the existing property sells, so credit scores do not factor in as heavily.
However, if an individual’s credit score is less than 650, the lender may require more information in order to approve the loan. Seeking less than traditional financing options can be a great solution for many homeowners with equity-rich properties hoping to transition between homes.
If you’re in the market to sell a property in order to buy another, you might want to reach out to a hard money lender and discuss your bridge loan options.