How Does a Bridge Loan Work?

More than six million homes sell every single year. And out of all of those sales, most people handle the moving process the same way. 

They make an offer on a new home, which is contingent on selling their current home in order for the sale to finalize. And while in the past, this strategy worked well, it’s no longer reliable.

Instead, more and more homeowners are having to get bridge loans. How does a bridge loan work? They help you to buy a home before selling your current house, to help make the entire process smoother, less rushed, and less stressful. 

Wondering if this type of home financing is right for your next move? Keep reading below for all the details on bridge home loans. 

What Is a Bridge Loan?

Bridge loans allow you to go about the house buying and selling process a little bit differently. Instead of selling your home first, getting money in the bank, and then buying a new house with those funds, you can reverse the process.

You use a bridge loan to buy a new house first. Then, once that process is complete, you list your home for sale, taking your time to ensure you do it right and make the most money during the process.

Why would you want to use this type of home loan financing?

It’s very hard to buy and sell a home all at one time. Especially in today’s competitive, fast-paced market. Bridge loans work by “bridging the gap” between buying your new home and selling the current one.

These short-term loans are eventually replaced by long-term financing. 

How Does a Bridge Loan Work?

You can qualify for a bridge loan to buy your new house before selling your current home. Since you haven’t sold your house yet, you probably don’t have the money needed for a down payment on the new property.

The funds that you receive from the bridge loan can be used as a down payment on the new property. Once approved, you can make a contingency-free offer on a new home.

Then, once you move into the new house, you can list the old one for sale. Once sold, the funds will be used to pay off the original mortgage.

You can hold your bridge loan for up to one year. You’ll need to apply for long-term home financing before your bridge loan expires.

There are many different home loan types you can use after your bridge loan, from a traditional mortgage to an FHA loan, depending on your situation.

Since interest rates on bridge loans are higher than long-term mortgages,m you’ll want to refinance the home as fast as you can. 

Funding Your Dream Home

So how does a bridge loan work? It works by making the buying and selling process smoother and less stressful. In a fast-paced market, it allows you to slow down a little bit, ensuring you make the right decisions when buying and selling since you aren’t as rushed.

Looking for more home buying tips and tricks? Head over to our blog now to find other helpful articles to help you find and fund your dream home.