Bridge Loan Basics

Imagine that you have decided to sell your house that you’ve either outgrown or maybe you want to downsize to a more manageable property. You’ve contacted your Realtor, signed the paperwork and put a for sale sign in the yard. Now, it’s just a matter of time, right? You’ve probably been looking for new homes already.  What are you going to do if you find that dream home before your house is sold? You’re going to need the proceeds from your current property to buy this perfect home. Even in a hot market, it could take months to sell your current home. Your new perfect dream home surely will be sold to someone else and you know it. So, what do you do?

A bridge loan might be the solution for you in this situation. A bridge loan, also known as interim financing or swing loan, is a short-term loan used to bridge a financial gap between the purchase of a new property and the sale of an existing one. It provides temporary funds to cover the down payment or closing costs on the new property until the borrower receives the proceeds from the sale of the old property.

Your lender will look at your income, creditworthiness, value of current property and how much equity you have in your current property. Keep in mind that bridge loans typically have higher interest rates compared to traditional mortgage loans. These higher rates can increase your borrowing costs, so it's important to carefully evaluate whether the benefits of a bridge loan outweigh the additional expenses.

The bridge loan will have a shorter-term repayment period. Typically, this is between 6 months to a year. In a market like we have in Central Florida this should be plenty of time, if the property is priced correctly, to sell your home. However, if you happen to need additional time, it can be added for an additional cost.

So, if you find that dream home before you have sold your primary property, the bridge loan will secure the down payment and closing costs needed to secure the property before your current home is sold. Once your existing home is sold, you would use the proceeds to repay the bridge loan in full, including any interest and fees incurred during the bridge loan period. After repaying the bridge loan, you can transition to a long-term mortgage or other financing options for the new property.

Talk to your lender to evaluate your current situation to see if this type of financing is going to work for you. At Mpire Financial we work with over 100 lenders and have many options for the borrower. A consultation will help you decide what is right for you. We’ll be happy to help you determine if it’s right for you.

If you think you might need this type of help with financing or any other type of loan, feel free to contact me at 407-902-5206. I’ll be happy to evaluate your situation and guide you through the process.

Click here to set up a consultation.

Tony Hamblin

NMLS#2232049

407-902-5206