If you find yourself buying a new home before you sell your current home, you’ll probably need to take out a bridge loan, which is also known as a swing loan. A bridge loan is different from a typical mortgage in that it is needed only short-term, usually for just six months to a year.

In a perfect world, you’d complete the sale of your current home first, giving you a large sum of money that you could use to cover the down payment and closing costs for new houses for sale. However, there are many instances where that perfect world doesn’t exist. That’s where bridge loans come in.

For instance, you’d need a bridge loan if you want or need to buy a home before selling your current one. If the closing date of your new home comes before your current home closes, you won’t have that big check in hand for the down payment. A second example of when you might need a bridge loan is when you have a sudden job change or family situation that necessitates getting into a new home quickly before you’ve had a chance to sell your current home.

Being in any one of these situations can be stressful and confusing. But don’t fret. There are many instances when a bridge loan can work for you while listing houses for sale in Montgomery County while you are looking for a new home.

Work with a real estate pro

The first thing you need to do before wading into the process of selling and buying Springfield real estate is hire a licensed, experienced real estate agent. An agent with several years of experience in the market can help you sell your current home and then assist with finding a new home. They can also explain the basics of bridge loans and suggest which lenders you should visit to begin that process.

Search for an agent who comes across as both professional and trustworthy. The process of selling and buying homes simultaneously can be unlike anything you’ve ever experienced before, and you’ll need to be in constant contact with your agent. Your agent will probably be your best friend from start to finish!

Situations when you need a bridge loan

How hot a market is can dictate whether you’ll need to take out a bridge loan for houses for sale in Montgomery County. In a balanced or buyer’s market, sellers will often accept an offer contingent upon the buyers first selling their current home. But if the market is tilted in favor of sellers, they often don’t have to accept offers with contingencies. They are likely receiving multiple offers at top-dollar and maybe even cash offers. They don’t want to wait around for the deal to close until after a buyer has sold their current home.

If you want the home badly enough, you’ll have to submit a contingency-free offer — also known as a clean offer — and use a bridge loan to close the gap between the time you close that deal and then can sell your current home.

Bridge loans are also popular with home flippers, which is when someone buys a fixer-upper home, makes renovations to get it into great shape, and then resells it as quickly as possible, often for a nice profit. Many bridge loans can be obtained more quickly than standard mortgages. If the renovation work goes as scheduled, the home flipper would then pay back the loan after selling the place.

How to qualify

Not all lenders offer bridge loans, so you’ll need to shop around while searching for deals for Springfield houses for sale. As Rocket Mortgage points out, there will be some similarities with applying for a traditional mortgage and some differences. For instance, the loan officer will ask you for your current credit score and review your overall credit history. They will also review your debt-to-income ratio, which is calculated by adding up all your monthly payments and dividing them by your gross monthly income.

In the case of a bridge loan, the lender wants assurances that you will be able to make your payments on time. That’s why bridge loans work best in a fast-moving market. If you need a bridge loan in a slower market, you might have trouble making payments each month on the bridge loan and your current mortgage while waiting for your current home to sell.

Options for bridge loans for Springfield houses for sale

According to Quicken Loans, there are two options for bridge loans. In the first option, you hold two mortgages at once, allowing you to make the down payment for your new home and then pay off your first mortgage when you sell your current home. The second option allows you to roll both mortgages into a single loan, which lets you pay off your first mortgage and then make the down payment for your new residence.

Rocket Mortgage and other loan experts also point out that borrowers almost always must have 20% equity or more in their current home to qualify for a bridge loan. That allows them to borrow up to 80% of the house’s value.

Chase Bank notes that people who take out a bridge loan can avoid paying private mortgage insurance (PMI) if they make a down payment of at least 20%. It’s always best to hit that threshold because making a smaller down payment means paying PMI, which makes your monthly payments more expensive. Bridge loans always come with higher rates.

Planning to sell and buy Springfield real estate?

These are the basics of bridge loans and how they can work for you. If you plan to sell and then buy Springfield real estate in 2022, let the experienced agents at Powerhouse Real Estate expertly guide you through the transactions.