According to the National Association of Realtors, parents gifting money to their children to help purchase a first home is a common experience. Gifting money is a type of down payment assistance that can help them realize their dreams of homeownership.
What are bridge loans and how can they help you buy your next home?
Many homeowners who are moving into a new home rely on the money they get from their current home to pay their down payment on the next one. When the buyer lacks the funds to finance the purchase of a new property without the prior sale of the first, their lender may recommend a bridge loan.
Also known as gap financing or interim financing, bridge loans are short-term loans used when financing is needed but not yet available. In short, these loans “bridge” that financial gap.
How can they help you buy your next home?
Bridge loans allow you to seamlessly move from one house to another
Bridge loans are outstanding when you want to move from one place to the other seamlessly. Proceeds from the pending home sale can go towards the new home’s down payment or cover closing costs. The sale of your previous home will not affect your ability to move into a new place, which is excellent for families who have to move for work or school.
Bridge loans help you avoid potential sale contingencies
Another pro of bridge loans is that you can make an offer on the house without using a sale contingency. This contingency is used in real estate contracts to protect buyers who want to sell their homes before purchasing another. Since sellers often prefer contracts with fewer contingencies, a bridge loan can help make your offer more attractive since you will have financing for a faster closing.
Qualifications for bridge loans
When applying for a bridge loan, expect the same credit and debt-to-income requirements as any other mortgage. Loan amounts start at $40,000, up to $250,000, and the loan must be your current primary residence. Because they are temporary loans, they must be paid off within the first six months.
As with all loans, work closely with your lender to determine the best strategy for your unique situation.