Selling your old home while buying a new one in Seattle can be a challenging balancing act, especially regarding timing and finances. This can be even more difficult in a market where inventory is scarce and home prices are rising. For many homeowners, it might seem like their only option is to sell their current home, move out, and temporarily relocate while house hunting. But what if there was a better way? Enter the bridge loan — a short-term financing option that lets you purchase your home before you’ve sold your old one. This post will guide you through the ins and outs of bridge loans – the pros, the cons, when you should consider one, and what you can expect throughout the process. A bridge loan, sometimes referred to as a swing or bridging loan, is a short-term loan that leverages the equity in your current home, providing you with the funds needed for a down payment and closing costs on your new dream home. This allows you to purchase a new property without the pressure of selling your existing home first. While bridge loans are typically more expensive than a traditional mortgage, speed and ease of use are often worth the extra expense. Imagine you’ve found the perfect new home in Seattle, but your current house hasn’t sold yet. Here’s where a bridge loan makes the most sense. It works by using the equity from your existing home to cover the down payment and closing costs for your new property, ensuring you don’t miss out on your dream home due to timing issues. The lender handling your mortgage for the new home will often manage your bridge loan. They usually require that your current home be actively listed for sale and offer the bridge loan for a period ranging from six months to a year. One of the most important things your lender will consider is your debt-to-income ratio (DTI). Lenders will calculate this by considering the payments of your existing mortgage, the mortgage for your new home, along with any interest-only payments on the bridge loan. The lender wants to ensure that you are financially stable enough to carry two mortgage payments, along with your bridge loan payments. However, there’s some flexibility. If your current home is under contract and the buyer’s loan is approved, lenders might only include the mortgage payment for your new home in the DTI calculation. This is so you are not potentially overburdened should your old home take longer to sell. Bridge loans offer several advantages, making them an appealing option for homebuyers transitioning between properties. Here are the main benefits: While offering flexibility and convenience in the home-buying process, bridge loans also come with several drawbacks. Here are the ones you should be most concerned about: Additionally, lenders will assess the equity in your current home. If you owe more than 80% of its value, you might have a hard time qualifying for a bridge loan. Here are some situations where a bridge loan might make sense:What is a bridge loan, in simple words?
How does a bridge loan work in Seattle?
What are the benefits of a bridge loan in Seattle?
What are the drawbacks of a bridge loan?
When is a bridge loan a good solution?
