Owner and broker of Carleton Realty, Bob Kutschbach, talks about bridge loans and how you can use them to be competitive in today’s housing market.
A bridge loan is a type of loan that you can get if you have equity in the home you are selling and you would like to use that equity for the down payment on your new home. It might sound a little scary to buy a home before you sell your current one. In our market though, there are more buyers than homes to buy and many of them do not have homes to sell. A seller is more likely to take an offer that does not have a home sale contingency attached. The seller may accept your offer with a home sale contingency but add an “escape clause” to the contract. An escape clause means that the seller retains the right to accept an offer that has better terms for them including one with no home sale contingency. You have 24 hours to meet the seller’s conditions and remove the contingency after they get a new offer. You can remove the contingency by moving to a bridge loan, keeping you in contract with the home you love!
The way that a bridge loan works is by taking a second mortgage out on your current home for the amount of your down payment. You will not need to make payments on the second mortgage, it will be paid off when your current home sells. It is basically a short term loan gap loan that allows you to take equity out of your current home for the down payment on your next home.
A bridge loan is a useful tool to ensure that you are competitive in today’s housing market. In a more traditional market where homes would take a month or two to sell, it could be a little riskier. But in today’s market where homes are selling in a week or two, it is much less risky, especially if your home is in good condition and priced correctly.
Call one of our agents if you are interested in a bridge loan. We can help!