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Bridge Loans in Missouri: How to Unlock Home Equity to Buy Before You Sell
HomeLight
Real Estate
12 months ago
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Selling your home in Missouri and buying a new one often involves a tricky dance of timing and finances. This becomes particularly challenging in a market where homes are scarce, and prices are high. You might think your only choice is to sell your current home, find a temporary place to live, and then hunt for your new dream house.

But what if there was a smoother solution? Enter the bridge loan. This short-term financial tool helps you purchase a new home in Missouri before you’ve sold your old one, fitting the pieces of your property puzzle together in a convenient and practical way.

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What is a bridge loan, in simple words?

In real estate, a bridge loan, also known as a swing or bridging loan, is a short-term financing option designed to help homeowners like you. It comes into play during the transition period of buying a new home while selling your current one. Essentially, this loan leverages the equity in your existing home, providing you with the necessary funds to make a down payment and handle closing costs for your new property in Missouri.

While bridge loans are generally more expensive than traditional mortgages, they offer a significant advantage: they enable you to quickly secure your new home in Missouri without waiting for your old home to sell.

How does a bridge loan work in Missouri?

Imagine you’ve found the perfect new home in Missouri, but your current home hasn’t sold yet. This is where a bridge loan comes into play. It allows you to tap into your existing home’s equity to cover the down payment and closing costs for your new property.

Typically, the lender working with you on your new mortgage in Missouri will also handle your bridge loan. They’ll usually require that your current home is listed for sale and offer the bridge loan for a period ranging from six months to a year.

A key factor in this scenario is your debt-to-income ratio (DTI). The lender will calculate this by considering the payments on your existing mortgage, your new home, and any interest-only payments on the bridge loan.

However, if your current home is under contract and the buyer’s loan approval is finalized, your lender might only factor in the mortgage payment for your new home. This consideration is crucial because lenders must ensure you can manage payments on both properties in case your current home doesn’t sell immediately.

What are the benefits of a bridge loan in Missouri?

Bridge loans in Missouri offer several advantages, making them an attractive option for homebuyers in specific situations:

  • You can make a non-contingent offer: This strengthens your position in competitive markets, as you can bid on a new home without selling your current one first.
  • Only one move is needed: Avoid the hassle and expense of temporary housing by moving directly from your old home to your new one.
  • Prepare your old home for sale at leisure: Once you move out, you can take your time to stage and sell your old home, potentially increasing its market value.
  • Potential for no payments during the loan period: Some lenders offer a period where you don’t have to make payments on the bridge loan, easing your financial burden.
  • Act quickly on the right property: Secure your new Missouri home without the pressure of selling your current one first.

These benefits make a bridge loan a practical solution for Missouri buyers needing financial flexibility before accessing the equity from their previous home’s sale.

What are the drawbacks of a bridge loan?

While bridge loans can offer increased flexibility and ease some of the stress associated with buying a new home and selling your current one, they also come with certain drawbacks:

  • Additional loan costs: Expect to pay underwriting fees, origination fees, and other associated costs.
  • Increased financial burden: Juggling payments for up to two mortgages and a bridge loan simultaneously can be financially challenging.
  • Stricter qualification requirements: Getting approved for a bridge loan can be more complicated than for a traditional mortgage.
  • Potentially slower underwriting process: The approval process for a bridge loan might take longer than you expect.
  • Equity requirements: Lenders will assess the equity in your current home; owing more than 80% of its value could disqualify you.

When is a bridge loan a good solution?

A bridge loan isn’t a one-size-fits-all solution in real estate, but it can significantly ease the transition between selling an old home and buying a new one for some homeowners. Here are scenarios where a bridge loan might be advantageous:

  • You need the equity from your current home to make a down payment on a new one.
  • Affording a double move and temporary housing isn’t feasible, making bridging the sale and purchase timelines crucial.
  • You’ve found your dream home and must act quickly to avoid losing out in a competitive market.
  • Home sale contingencies have hindered your offers, and you need more immediate purchasing power.
  • Your goal is to sell your home empty or staged, which can be more profitable and easier to manage. This is especially relevant if preparing or staging your current home for sale is impractical while you’re still living in it. An unoccupied, well-presented home can significantly enhance its appeal and value on the market.

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