Bridge Loan
What happens if you want to buy a new home, but you haven’t yet sold your current home?
A bridge loan offers a short-term financing solution so you can buy your new home before selling your current home. At CrossCountry Mortgage, our knowledgeable team can help you secure a bridge loan for your next purchase. Here’s how the process works.
What is a bridge loan?
In real estate, a bridge loan is a short-term loan that enables homebuyers to purchase a new home before selling the existing home. These loans are sometimes referred to as a swing loan or gap loan. As the name suggests, it is designed to bridge the gap between selling your current home and obtaining a new property.
Borrowers gain the advantage of being able to move quickly in a fast-moving, competitive housing market.
How does a bridge loan work?
Bridge loans typically rely on the equity of your current home and provide the financial resources to purchase your next. In some cases, bridge financing is used to pay off your existing mortgage, and you can then use the remainder for the down payment on your new home.
In other cases, your loan serves as a second mortgage, allowing you to use the loan as a down payment on your next home.
At CrossCountry Mortgage, you’ll find bridge loans that:
- Last 4 months
- Provide up to 85% of your home’s value
- Don’t require an appraisal
- Require interest-only payments during the loan term
Interest rates vary, but the best rates and terms go to those with a strong credit history. Admittedly, most bridge loans have higher interest rates than traditional mortgages, though the loan period is much shorter.
When to use a bridge loan
When is the best time to consider a bridge loan? At CrossCountry Mortgage, we recommend bridge financing when:
- You can’t afford the down payment of a new house until you sell your current one
- You’re moving for work and need to secure a home quickly
- Your closing date for your new home occurs after the close of your current home
- You haven’t listed your existing home yet
This loan will provide you with the financial means to act quickly in the housing market and secure financing without worrying about the sale of your existing property. And if you can use a bridge loan to put down a full 20% down payment, you can avoid private mortgage insurance (PMI).
Pros and cons of bridge loans
Bridge loans have both advantages and disadvantages. Before you commit to this financing option, consider some of the following pros and cons.
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On the one hand, these loans:
- Empower you to buy a new home before selling your current home
- Allow you to make an offer without using a sale contingency
- Help you during a period of sudden housing transition
- Offer interest-only payments until you sell
Homebuyers gain the flexibility to make a new purchase without having the details sorted out on their current home, which is the primary advantage of bridge financing for many borrowers.
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Cons of these loans can include:
- High interest rates
- Home equity requirements, as some lenders expect at least 20% home equity
- The possibility of managing two mortgage payments for a period of time
Additionally, bridge loans come with the assumption that you’ll sell your current home relatively quickly. If you fail to sell your home, you could face additional challenges — even foreclosure, if you’re unable to afford payments on both homes.
Bridge loan requirements
Like a traditional mortgage, a bridge loan includes both the loan amount itself as well as closing costs and fees. To qualify, CrossCountry Mortgage will evaluate your:
- Credit score
- Credit history
- Debt-to-income ratio
While most bridge loan lenders require you to have at least 20% equity in your existing home to qualify for a bridge loan, CrossCountry Mortgage only requires 15% equity.
How to get a bridge loan
CrossCountry Mortgage offers bridge loans to those with credit scores of 680 or above. We also offer up to 85% of your loan-to-value ratio, which means you only need 15% equity in your current home to qualify. If you need short-term financing to buy your next house, contact CrossCountry Mortgage today.
Bridge loan FAQs
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A bridge loan is a form of short-term financing. Homebuyers can use these loans to fund their next home purchase or down payment prior to selling their current home.
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Admittedly, they can bring high interest rates and some risks if you don’t sell your current home. But homebuyers can use bridge loans if they need to act quickly to respond to the real estate market or if they’re relocating for career reasons.
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These loan costs include the closing costs of the loan as well as interest rates. Some lenders also add on origination fees. Closing costs and fees can be 1% to 3% of the loan amount, and interest rates vary between 6% and 12%.
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Alternatives can include a home equity loan or home equity line of credit. A home equity line of credit also relies on your existing home equity, but it provides a rotating source of financing similar to a consumer credit card.
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