Skip to main content

Is a Bridge Loan Right for You?

August 8, 2019

Are you ready to sell your existing home and upgrade to a new one? Maybe you’re looking to downsize or relocate? Whatever your motivation to sell your current home and purchase a new one, there are many types of loan options and home-buyer programs that can assist. An option you may not be aware of is a Bridge Loan. When deciding if a Bridge Loan is the right move for you, it’s important to know exactly what a Bridge Loan is and how it can best help during the home buying process.

What is a Bridge Loan?

A Bridge Loan allows you to take advantage of the equity in your current home to purchase your next home. It’s a short-term loan, typically less than a year, that “bridges” the gap between the purchase of your new home and the sale of your current home. This can be a big advantage in today’s competitive market. Homes in the Melrose market, on average, sell within 8 days – and sellers can expect multiple offers. So, when you find the new home of your dreams, how can you make your offer stand out? Rather than presenting an offer that is contingent on selling your current home, a Bridge Loan may allow you to bring a significant down payment or even an all-cash offer to the table. This is often a more attractive offer and may be the deciding factor in a competitive housing market.

The use of a Bridge Loan would also be appropriate if there is a gap (long- or short-term) between the closing date of selling your home and the closing date of buying the new property. Bridge Loans can also be an extremely helpful tool when trying to upgrade to a new home without tapping into other investments, such as your 401(k). Keep in mind, however, that during this “gap” you may be carrying multiple loan payments. Ask your banker how this may impact your ability to qualify for the loan on your new home.

With a Loan, Comes Interest Rates…  

Let’s be blunt, every loan comes with an interest rate. Bridge Loans typically come with a higher interest rate and upfront fees, compared to traditional home loans. Some banks, however, offer interest-only payments for a period of time, and often do not have a prepayment penalty.  When considering the cost of getting a Bridge Loan, remember with a more attractive offer, you may be saving money in the long run.

How do you qualify?

To ensure a quick application process, it is important that all necessary documents are in order. Some of the required documents to expect are W-2 forms from the past two years, current pay stubs, and copies of bank statements. Since the home securing your Bridge Loan will eventually be sold, let your bank know if it’s currently listed with a real estate agent too. You should talk to your local banker, because requirements and availability may vary across financial institutions.

Overall, Bridge Loans can be beneficial, and may be what gives you an edge to get the house you’ve had your eye on. Although it’s important to not rush into making a decision. If you are considering a Bridge Loan, be sure to talk to a lender about options that best fit your upcoming move. Always keep in mind that the best place to start the conversation is at your local bank!

Jim Oosterman is the Senior Vice President of Melrose Bank and a lifelong resident of Melrose. He can be reached by telephone at 781-665-2500, online at melrosebank.com or on Facebook at facebook.com/MelroseBank.


« Back to Articles

Discover everything we can offer.