Bridge Loans Help With Intense Bidding Wars
A bridge loan may help you buy your next home before completing the sale of your current home. Essentially, it’s a way to take out a loan against your current home to make a stronger offer on a new home without having sold your current home. This temporary loan is helping some buyers waive a contingency offer in a bidding war for their future home and helps their offer to stand out.
Sellers who are juggling many offers for their home may be more likely to bypass offers that are contingent on the sale of a current house. It is nearly impossible to compete in today’s market with a contingent offer without offering a higher bid price. This bridge loan can save you hugely on your new home.
Bridge loans can differ in structure among lenders. Usually, a homeowner can use a portion of their bridge loan to pay off their current mortgage while using the rest as a down payment on a new home. Homeowners also may be able to use a bridge loan as a second mortgage to cover the down payment for their new house. The underwriting on bridge loans tends to be faster than traditional loans.
While bridge loans offer you a chance to make a contingency-free offer on a new home without selling your existing home, there are some caveats to consider. A bridge loan tends to have higher interest rates (between 8.5% to 10.5%) and these loans only last between six months to a year. Which you would then switch to a conventional loan. Also, the borrower will have to pay back the loan even if the home doesn’t sell during that time. Selling your home is not a problem in the current seller’s market.
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