how does a bridge loan work when buying a home

Best answer

A bridge loan is a short-term loan (typically 12 months or less) thatallows you to borrow against a portion of your current home鈥檚 equity to make a down payment on a new home. Your home equity is the value of your home less the balance of your mortgage. A bridge loan helps with the balancing act of buying one home while selling another.

People also ask

  • What is a bridge loan and how does it work?

  • A bridge loan is a home loan designed for people who have an existing home and want to buy a new one. It bridges the gap between selling a house and purchasing a new one. Loan terms are usually between six and 12 months. Bridge loans can be used in one of two ways.

  • What happens to my bridge loan when I Sell my House?

  • Once your home sells, you pay off the bridge loan and then apply for a new longer-term mortgage with a more favorable interest rate to refinance just your new home.

  • Does a bridge mortgage make sense for You?

  • A bridge mortgage might also make sense if you鈥檙e fixing and flipping a home. Flips are designed to be short-term, and if everything goes according to plan, you can repay the loan when you sell. Depending on the lender, you may be able to obtain a bridge loan faster than traditional financing, allowing you to snap up a property quickly.

  • What do Lenders look for when lending a bridge loan?

  • Lenders will look at a few factors to see if you qualify for a bridge loan: Equity. You鈥檒l need at least 20% equity in your home. Affordability. Lenders will look at whether you can afford to make multiple loan payments. You may be paying for a bridge loan plus a mortgage on your new home and your current mortgage until the home sells.

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