Whether you are downsizing or trying to make room for your expanding family, you might be in that awkward place of trying to take care of your current mortgage while trying to move to a new home. When you find yourself caught in a position of trying to purchase a new home before your old one sells, this is where a bridge loan fills the gap.
How Does a Bridge Loan Meet Your Needs?
The main motives why a homeowner may use a bridge loan is to:
Place a “contingency-free offer” on a new home.
When you have a contingency-free offer, this can entice the seller because they do not have to wait for you to sell your home.
Avoiding Private Mortgage Insurance (PMI)
If you cannot pay a down payment of at least 20%, most mortgage providers require PMI. The cost of PMI could range from 0.25% to 2% of your loan balance per year. If your down payment is in the equity of your current home, a bridge loan could allow you immediate access to funds for a down payment.
Types of Bridge Loans
A bridge loan is a type of temporary loan when homeowners attempt to sell their home and purchase a new one concurrently. There are two different ways that financial institutions package their bridge loans.
One large loan – When you apply for a bridge loan that is one large loan balance, you can typically ask for 80% of the two homes’ combined value. With this money, you can pay off the balance of your first home and use the remaining balance as money towards a down payment of your new home.
Hold Two Mortgages – In this bridge loan package, you can borrow the difference between the current balance of your mortgage and up to 80% of your home’s value. This loan will act as a second mortgage to apply the funds to the down payment of your new home. With the sale of your old home, you can pay off the first mortgage and the remaining balance of the second mortgage.
Contact Fortis Funding today to learn more about our bridge and hard money loan solutions.