The fear of hiccups between contract and closing is (almost) over. If you’ve been fearing that you might not sell your home before you need to purchase a new one, a bridge loan can offer you a short-term solution that provides the financial support to keep you moving forward.
What Is It?
The funds for a down payment and closing costs often come from the proceeds of selling an existing property. However, if you are unable or unwilling to sell your current property before buying a new one, then coming up with these funds can be difficult. A bridge loan can be put in place to finance both your closing costs and down payment.
The loan is secured to the buyer’s existing home and taken out by a borrower against their current property so they can finance the purchase of a new one. Funds from the bridge loan are then used as a down payment for the new property.
Even if you are absolutely certain your existing home will sell, this can alleviate fears about what happens if it doesn’t.
What Makes It Great?
A major benefit is the fact that it allows you to buy a new home without a contingency to sell. In a seller’s market, a contingent offer is far less attractive than an offer that is not dependent on the sale of the buyer’s current home.
This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short term, providing immediate cash flow with relatively low interest rates. Plus, there are no payments for six months.
What Could I Use it For?
Here are some other ways a bridge loan could be used:
- Buyers can immediately put their home on the market and buy without restrictions. A borrower may not be required to pay monthly payments for a few months.
- Avoid a double move.
- Skip the contingent offer: increase your advantage over the competition by being able to submit a non-contingent offer.
- Bonus: up to $5,000 can be financed into the loan for additional moving expenses.
But Do I Qualify?
Here are the qualifications to get a bridge loan:
- Credit score: minimum of 700 is required.
- Credit history: no bankruptcies or foreclosures in the last 7 years, minimum 3 trade lines with a 12-month history, 0 x 30 late payments in the last 24 months on all mortgages.
- Assets: 3 months (non-retirement) reserves for departure residence, new primary and bridge loan.
- Occupancy: the departing residence that will be securing the bridge loan must be the borrower's current primary residence.
- Ineligible properties: manufactured homes, condos, and unique properties.
- FBHL eligible states: Missouri, Kansas, Oklahoma and Arkansas.
- Terms: the maximum loan amount is $100,000. Loans will be amortized over 360 months with a 6-month balloon (meaning bridge loans need to be paid off within 6 months).
- Even if you think you’re not qualified for a bridge loan, contact your local FBHL Loan Officer and find out for sure.