You’re in the ultimate Catch-22 situation. Your dream house is on the market, but you can’t afford it without selling your current home. To make matters worse, the seller isn’t keen on a contingency offer.
Keeping in mind that the average house in Middlesex County is on the market for 36 days, where do you turn? Should you underprice your home and hope it sells fast?
You don’t need to resort to drastic and ruinous measures.
Applying for a bridge loan can help you buy your next home before selling the current one. Savvy homeowners in Middlesex County turn to bridge loans to help them bridge the gap in their financing.
What is a Bridge Loan?
A bridge loan is a short-term loan to help homeowners buy a new home before their current one sells. Also known as a swing loan or gap financing, a bridge loan lets you take out a loan against your current home and put down a deposit on the new one.
With a bridge home loan, you’re borrowing against the equity in your current home to ensure a smooth transition and peace of mind before it clears the market. Typically, the repayment period for a swing loan is short, between 6 to 12 months. In most cases, a bridge loan is payable immediately after you sell the current home
How Does a Bridge Loan Work
A bridge equity loan provides a financial cushion to homeowners caught up in the tricky situation of buying and selling a house at the same time. A swing loan provides funds to tide you over this transition period. Typically, the bridge loan amounts are small, usually no more than 3% of the price of your new home.
Often the full repayment of a bridge equity loan is predicated on selling your current home. If your home doesn’t sell quickly enough, you may struggle to repay the loan. But you can opt to repay your bridge loan in monthly installments.
Due to such uncertainties and risks, bridge loans carry a premium interest rate, usually about 2% above the prime rates. The interest rates on bridge loans in Middlesex County are between 8.5% to 10.5%.
Bridge Loan Qualifications
To qualify for a home bridge equity loan, you need the following:
- Excellent credit score
- Low debt-to-income ratio
- Significant home equity, at least 20%, in your current home
How Long Does It Take to Get a Bridge Loan
Since bridge loans are short-term loans, they’re more accessible than a standard mortgage. It takes between 72 hours and two weeks to access a bridge loan in Middlesex. Typically, you can have the initial decision about your bridge loan application within 24 hours, but accessing the funds takes a little longer.
The bridge loan application, approval, and funding process vary between lenders. You can speed up your bridging loan application by providing all the necessary documentation and working with an experienced solicitor. Having an exit strategy when applying for a swing loan is equally important. An exit strategy informs the lender how you plan to repay the loan and increase your chances of a successful application.
Bridge Loan vs Home Equity Loan
Bridge loans and home equity loans are remarkably similar because they require home equity for approval. The collateral standards may be similar, but there are significant differences between bridge and home equity loans.
- You use a bridge loan to buy a new home when selling your current one, while you may use the home equity loan for any purpose.
- A bridge loan is a short-term loan payable in 6 to 12 months, while a home equity loan is a long-term loan with varying repayment options.
- Bridge loans are more expensive than home equity loans since they carry higher interest rates and fees.
- You can only apply for a bridge loan after listing your home, but you must secure a home equity loan before listing your home.
- A bridge loan provides the funds as a lump sum, while some home equity loans, such as HELOC, provide a line of credit capped at an agreed limit.
Can I Use a HELOC as a Bridge Loan
You can use a Home Equity Line of Credit or HELOC as a bridge loan when selling your home. However, you must be a creditworthy borrower and own at least 20% equity home to qualify for a HELOC.
HELOC allows you to convert equity interest in your home into a line of credit from a lender. You may use the fund from a HELOC to put down a deposit on your new home and make mortgage payments on your current as you wait for it to sell.
There are distinct advantages to using HELOC as a bridge loan. HELOCs have a 10-year repayment grace period, carry lower interest rates, and the interest paid on them is tax deductible.
Are Bridge Loans a Good Idea
Home bridge financing is highly convenient if you need to buy a new home before your current one clears the market. A bridge loan is a good idea if:
- You’ve identified your new home, but the seller has refused a contingency offer.
- You can’t raise the down payment for your new home until you’ve sold your current one.
- You’re listing your house in a seller’s market, so you’re assured your current home will sell quickly after you’ve bought your new home.
- You have an offer for your current home, but it’s likely to close after you’ve bought the new house.
Buy Your Dream Home in Middlesex County Today
You don’t need to underprice your home to sell faster when you need the funds to buy your dream home. Applying for a bridge loan in Middlesex County lets you buy your dream home before your current home clears the market. A swing loan lets you use your home equity as collateral to pay for the next home, so you don’t run into financial headwinds.
