How to use a bridge loan to buy a home
A bridge loan is a financing option that allows you to use the equity of your current Rhode Island home as a source of funding for a new home. A bridge loan is a short-term loan used as a financial bridge between selling your current home and purchasing a new one. Bridge loans are also known as swing loans or gap financing.
Many homebuyers use bridge loans to remove the home sale contingency when they make an offer on a new home they are purchasing. A home sale contingency typically states that the buyer’s existing home must sell before closing on the new purchase. However, in a competitive real estate market, sellers may hesitate to accept offers with this contingency.
A bridge loan allows you to proceed without relying on the sale of your current home. Eliminating the contingencies makes your offer more attractive to sellers. In addition, in most cases, there are no monthly payments on the bridge loan, and it is not required to be paid off until after the original home sells. Typically, bridge loans have terms lasting an average of 6 months to 1 year and are paid in full upon the sale of the existing home.
Pros of a bridge loan
- If you need to move quickly and can’t wait for your home to sell, you can use a bridge loan to make a down payment on a new home or to pay off your original mortgage
- Provides an alternative to a HELOC
- No monthly payment on the bridge financing
- No new qualifications are required on the new home purchase
Cons of a bridge loan
- Bridge loans may have higher interest rates and a higher APR
- Significant equity in the home is required
- If your home doesn’t sell by the end of the loan term, you may own two houses and have to manage two mortgages
Mortgage Equity Partners has two proprietary bridge loan products. The MEP Instant Equity program allows homeowners to access their equity quickly for a down payment and closing costs on a new home. No new qualification is required for the purchase loan, and funds are sent directly to closing. The Instant Equity program can be used on 1-4 unit homes, PUDs, and some types of manufactured homes and condos.
Hubbard Buster Bridge Loan
We also offer the “Hubbard Buster” bridge loan. This loan takes its name from the Hubbard Clause, an addendum or rider to a residential real estate purchase agreement, making the purchase contingent upon the buyer selling their home first. The Hubbard Buster empowers you to access equity from your current home to purchase a new home with no monthly payments on the bridge financing. The Hubbard Buster allows you to make a non-contingent offer on the new property, gaining a competitive edge in a hot housing market. The Hubbard Buster bridge loan offers loan amounts up to $2MM and has a balloon payment due in 12 months.
Bridge loans are best used in a seller’s market or a hot geographical area where time is of the essence, and there is stiff competition for available properties. However, as long as you are reasonably sure your old Rhode Island home will sell by or before the end of the loan term, you can confidently use a bridge loan to make a quick offer without a financing contingency.
Contact one of our trusted loan officers near you today!
