A bridge loan on a departing residence taps into the equity in your current home (the one you’re selling) to help finance the purchase of your new home.

How it Works:

• The loan is secured against the equity in your departing home.
• It provides funds for the down payment or closing costs on your new home.
• Once your existing home is sold, the sale proceeds are used to repay the bridge loan.

Advantages

• Access to Equity Before Selling: This loan allows you to access your current home’s equity before the sale is finalized, giving you the flexibility to act on a new home purchase without delay.
• Versatile Use of Funds: You can use the bridge loan for various expenses, including down payments, closing costs, or even making upgrades to the new home.

Considerations:

• Dual Payments: Until your departing home sells, you’ll need to manage payments for both your current mortgage and the bridge loan, which can impact your cash flow.

• Higher Interest Rates: Since bridge loans generally carry higher interest rates than traditional mortgages, it’s essential to manage the timing of the sale carefully to minimize costs.

A bridge loan on the acquiring residence secures the loan against the new home you’re purchasing, providing a way to finance the transition without relying on your current home’s equity.

How it Works:

• The loan is secured by the new property you’re acquiring.
• It provides the necessary funds for a down payment or other home purchasing expenses.
• Once your financial situation is stable, you can transition the bridge loan into long-term financing, such as a traditional mortgage. Vellum Mortgage’s 2-Step Home Financing is a great option to help you make this smooth transition.

Advantages

• No Need to Use Current Home’s Equity: You can secure financing for your new home without depending on the sale or equity of your departing residence, making this a flexible solution for a variety of financial situations.

• Quick Action in Competitive Markets: This loan option allows you to act quickly on purchasing a new home, even if your current property hasn’t sold yet, or if you face other financial constraints.

Considerations:

• Loan Limitations: The amount you can borrow is based on the value of the new home, which may affect how much you can use upfront.Managing Two Properties: Like other bridge loans, you’ll need to handle the financial logistics of owning two properties until your current home is sold or your financial situation is resolved.

1. Rapid Market Movements: In a seller’s market, homes sell quickly, and buyers may need immediate access to funds to secure a property before their current home sells. A bridge loan provides the liquidity to move forward without waiting for the sale.
2. High Debt-to-Income Ratio: Holding two mortgages can temporarily inflate your debt-to-income ratio, making it harder to qualify for a traditional mortgage. A bridge loan can provide short-term relief until your existing home is sold.
3. Income Verification Challenges: Changing jobs or waiting for new income verification can complicate traditional mortgage approvals. A bridge loan allows you to secure your new home while you gather the necessary documentation to qualify for long-term financing.
4. Self-Employed Buyers: Self-employed individuals often face difficulties proving steady income. A bridge loan provides temporary financing until a stable income record can be established for a traditional mortgage.
5. Fixer-Upper Investments: Homes in need of significant renovation may not qualify for traditional mortgages. A bridge loan can cover the purchase and renovation, with a traditional mortgage secured once the property’s value is improved.
6. Non-Conforming Property Types: Some properties may not meet standard mortgage guidelines. A bridge loan can provide the funds needed to purchase unique or non-conforming properties until long-term financing is arranged.

Using a bridge loan can also offer strategic advantages when it comes to presenting stronger offers in real estate transactions:

• Avoid Double Mortgages: A bridge loan gives you the financial flexibility to handle both properties without juggling two traditional mortgages.
• Leverage Future Income: Use anticipated income or financial boosts to secure your new home while still managing your current property.
• Seamless Downsizing: If you’re moving from a larger to a smaller home, a bridge loan helps you utilize your current home’s equity for a smoother transition.
• Stronger Offers: With financing secured through a bridge loan, you can eliminate sale contingencies, making your offer more appealing to sellers.

Which Bridge Loan is Right for You?

Choosing between a bridge loan on a departing residence or a bridge loan on an acquiring residence depends on your financial situation and the timing of your real estate transactions. Both options provide the flexibility needed to move forward with your home purchase without waiting for your current property to sell.

If you’re ready to explore bridge loan options, Vellum Mortgage can help guide you through the process, ensuring a smooth transition from temporary financing to a long-term mortgage solution. Contact us today to learn more about how we can support your homebuying journey!