With low inventory and heavy competition in many parts of the state, if you find a house you want to buy in Texas, it might be a good idea to get it even if your house hasn’t sold yet. How? Explore a bridge loan and let your home’s equity help fund your next house in the short term. A bridge loan can be a fitting solution when you’ve found your dream home and need to act quickly, or you need more time to prepare your old home to sell, allowing you to buy before you sell. In this post, we’ll unpack this financing option and how you can put it to work for you. A bridge loan for a real estate transaction is a short-term loan that enables homeowners to purchase a new home before their current home sells. Also called a swing loan or bridging loan, it allows a homeowner to leverage the equity in the home they’re selling to provide the funds for a down payment and closing costs on their new house. As Don Keeton, a top-performing real estate agent with 47 years of experience, says, with a bridge loan, “you can tap the equity of your current home before you’ve sold it.” Although they are often more expensive than a traditional mortgage, a bridge loan can hasten the process with added convenience. According to the National Association of Realtors, 38% of home buyers have relied on a bridge loan to see them through to their next abode. If a Texas buyer has found “the” house before selling their current home, using the equity accrued in the existing home to cover the down payment and closing costs can be a good option to avoid letting that dream house slip away. Bridge loans are short-term, emphasis on “short.” Also called interim loans or gap financing, most include terms from six months to one year, and are expected to be repaid as soon as you sell your current home. Think of them as bridging the gap between when you need the money to buy a new house and when you receive money from the sale of your current home. Because they’re short-term and because of the risk factor involved in selling your current home, interest rates are generally higher with them than with a mortgage. But there are similarities. For example, you may have to pay an origination fee, and you might be able to use the same lender who is servicing your new mortgage, although not all traditional lenders offer bridge loans. That lender may calculate your debt-to-income ratio (DTI) to qualify you for a bridge loan. This DTI could include your current mortgage payment, the mortgage payment on the new home if it’s not under contract with a buyer, and the interest-only payment on the bridge loan. A bridge loan may be an option that facilitates the purchase of a new home before selling your current home. Depending on where you live in the state, median housing prices in Texas can range from $313,000 in cities like San Antonio to $450,000 in areas like Austin-Round Rock. Higher interest rates have made sales volume go down, but prices have gone up over the last year. This is partly due to the fact that inventory is not keeping up with demand. All these factors point to trying to lock in the purchase of the house you want, no matter where you are in the sales process of your current home. Despite its higher cost, a bridge loan may offer some benefits. Let’s review the upsides. When an offer is contingent upon the buyer selling their current home, it’s not as competitive as a non-contingent offer. A contingency is a term or condition that must be met before the sale can be completed. Many buyers with a home to sell include a sales contingency on their offers. In a competitive seller’s market, the seller may prefer a “clean” offer, free of contingencies, to hasten the sale. About half of all buyers already own a home, so contingencies are common. While only around 5% of contracts are terminated due to contingency issues, many sellers still prefer to accept offers without contingencies. Heidi Daunt, branch manager and owner of Treehouse Mortgage Group, says, “If you have an approved bridge loan, you can write a non-contingent offer, so it gives you better negotiating power on your new purchase.” According to Keeton, “If you go to a seller and say, ‘Would you wait until I sell my house?’ in today’s market, they’ll probably say ‘No.’ A bridge loan is a way for you to take control of that house so you don’t lose it to another buyer.” If the homeowner has sold their home before being able to purchase a new one, they may be forced to move into a short-term rental. In addition to the added inconvenience of moving twice, there may be extra costs. According to Move.org, the average cost for a move is $9,060. Multiply that by two if you have to find a temporary home because you don’t have a bridge loan to move directly into your new house. “Sometimes what you have to do is sell your house, move to an apartment, buy another house, and then move again. A bridge loan helps avoid that,” Keeton says, who works with over 75% more single-family homes than the average agent in his market. If the seller uses a bridge loan to move into their new home, it can give them a clean slate to get their old home ready to list, with less pressure and less in the way. If you get a lender who allows a grace period to defer payments, or who charges interest-only on a bridge loan, it can ease the financial pain and make a bridge loan even more convenient. If the new house you’re moving to is new construction or a renovation, a bridge loan can provide funding to purchase materials and equipment to do the work.What is a bridge loan, in simple words?
How does a bridge loan work in Texas?
What are the benefits of a bridge loan in Texas?
You can make a non-contingent offer on your new home
You only have to move once
You can prepare your old home for sale after moving out
Some lenders don’t require payments during the loan period
You can get funding for materials and equipment for construction.
