Bridge loans are a tool that can help an existing homeowner buy their next home before they sell their current home. In today’s competitive real estate market, Sellers typically won’t accept offers that are contingent on the sale of a Buyer’s existing home – so a bridge loan can be a crucial tool for getting your offer accepted.
A bridge loan is a special-purpose refinance of your existing home loan. It’s special because everyone involved (you and the bridge loan lender) knows that the bridge loan is intended to be temporary. A bridge loan allows you to extract some of the equity from your existing home prior to selling it so that you have money for the down payment on the new home.
In what states are bridge loans available?
Accunet’s most popular bridge loan money source will make bridge loans on primary residences located in southeast Wisconsin, northern Illinois and Minnesota. We have another Wisconsin-only bridge loan lender, and a third who lends through Illinois and southeast Wisconsin. We currently do not have any bridge loan lender for Florida properties, the fourth state in which Accunet lends.
If Accunet is providing a first mortgage on the new property you’re buying, we cam facilitate getting all of your income and credit documentation to the bridge loan lender with your permission, but we won’t be directly involved in lending the money like we are on the mortgage for your new home. If you don’t need a mortgage on the new property, you’ll work directly with the bridge loan lender.
Key features of our most popular bridge loan lender’s product:
- Borrow up to 80% of the appraised value of your current primary residence. An appraisal ordered by the bridge loan lender is required.
- The bridge loan must pay off all existing mortgages on the property.
- Closing costs are usually between $500 and $1,000 depending on the size of the loan plus an origination fee of $500 or 0.5% of the bridge loan amount, whichever is greater.
- Monthly payments are interest only, but you can make principal payments if you wish.
- The bridge loan must be paid off when your existing home sells or at the end of 10 years (yes, years).
- The monthly interest cost of the bridge loan, along with the monthly property tax and insurance expense on the existing home, is factored into your pre-approval to buy the new home. This bridge loan lender also evaluates if they believe you have enough income to make the payments on both homes. But we have another bridge loan lender that doesn’t care so much about qualifying income and relies instead on a borrower’s assets to determine if they can afford to make payments on both the old and new home for a short period of time.
- Money / proceeds from the bridge loan are not available until the third business day following the bridge loan closing, because the bridge loan is a refinance of your primary residence. Federal regulations require borrowers be given a 3-day right to rescind (cancel) the refinance of their primary residence.
All bridge loans take time to put together so it’s best to get pre-approved for the bridge loan as part of the overall pre-approval process.
Not every homeowner can qualify to carry two monthly mortgage payments (including taxes and insurance on both the new and existing home), and others simply don’t want to. In those cases, the only way to write an offer without a sale of home contingency is to sell the existing home first, and then rent or move in with relatives while searching for the next home.
The key is to know all your options. Crossing the bridge from your existing home to your new home can be a financial puzzle that seems hard to solve. But Accunet has the best puzzle solvers in the mortgage industry with a full set of tools in our mortgage tool box to solve the puzzle.