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Bridging the Gap: Buying a Home Before Selling Your Current One
Buying a home and selling a home each come with more than their fair share of challenges. But what if you're trying to do both at the same time? Our real estate agents understand that the struggle is real, and we're here to help.
Before you sell your home or start looking for Atlanta homes for sale, we have a few tips that might take some of the stress out of the equation. One option many homebuyers turn to is a bridge loan, which essentially "bridges" the gap between buying a new home and selling your current residence. There are a lot of benefits as well as some potential drawbacks, but it's an option worth considering.
What Is a Bridge Loan?
If you're trying to buy a new home, you may be struggling with timing as well as finances. It would be ideal to sell your old home, and then use the income from the sale to purchase a new home, but it doesn't always work out that way. In many cases, the only option is to buy first and sell later. That's where a bridge loan comes in.
A bridge loan is a short-term loan, intended to make it possible to buy a new home before you sell your current residence. With this type of loan, the equity on your current home is essentially used as collateral to borrow against. That can be a big help to a lot of homeowners, but be sure to consider the drawbacks as well as the potential advantages.
How Bridge Loans Work
With a bridge loan, you can typically finance up to 80 percent of the combined value of both homes. A bridge loan is not, however, a substitute for a mortgage. It's a short-term solution, meant to be paid back within a few months or years, depending on the terms of the loan. You can use this loan to purchase your new home, and then after your old home sells, you must apply for a new longer-term mortgage.
Pros of Bridge Loan
- Allows you to buy a new home before you sell your old home, using the equity on your current house
- Takes a shorter time to process than a traditional home loan (usually a couple weeks)
- May not require payment for a few months, which gives you greater flexibility with your cash flow
- Allows you to avoid having contingencies in your contract that make buying a home contingent on selling your prior home
Cons of Bridge Loans
- Comes with a higher interest rate than a traditional home loan, which could end up costing you more
- Needs to be paid back on a short term (typically six months to three years)
- You must be able to qualify to own two homes
- You will still need to apply for a mortgage
- The added stress of handling the mortgage from your old home, the mortgage from your new home, and a bridge loan at the same time
The terms of bridge loans can vary widely, so don't make any assumptions. It may or may not be the right move for you. Be sure to talk to a variety of lenders and consult with your real estate agent first.
No matter what challenge you face on the road to homeownership, our team is here to help. Contact us today to learn more about buying a home, selling a home, and how you can do both at the same time while still maintaining your sanity. With the right real estate agent by your side, it might not be as hard as you think!