{"id":9370,"date":"2023-03-17T23:01:00","date_gmt":"2023-03-18T06:01:00","guid":{"rendered":"https:\/\/www.flyhomes.com\/blog\/?p=9370"},"modified":"2025-01-06T00:16:50","modified_gmt":"2025-01-06T08:16:50","slug":"buying-your-next-home-with-a-short-term-loan","status":"publish","type":"post","link":"https:\/\/flyhomes.com\/blog\/buying-your-next-home-with-a-short-term-loan\/","title":{"rendered":"Buying Your Next Home with a Short-Term Loan"},"content":{"rendered":"\n

When you find a home you love in a hot seller\u2019s market, you can\u2019t always wait until your current home has sold to make an offer. Yet buying before you sell can be tricky. If you don\u2019t have enough cash in savings, how do you finance your next down payment?<\/p>\n\n\n\n

There are plenty of short-term loan options you could use in that situation\u2014and bridge loans are one of them. In this guide, you\u2019ll learn how bridge loans can help you afford your next home before you have to sell your current one. <\/p>\n\n\n\n

What exactly is a bridge loan?<\/strong><\/h3>\n\n\n\n

In real estate, bridge loans are short-term loans that homebuyers use to \u201cbridge the gap\u201d between buying a new home and selling their current one<\/a>. They\u2019re also known as swing loans, bridge financing, gap financing, and bridging loans.<\/p>\n\n\n\n

In a bridge loan, the borrower\u2019s current home serves as collateral so if you can\u2019t pay it back, the bank could take possession of your home. Because of this, most lenders require the borrower to have at least 20% equity in their property.<\/a> This can make it harder to qualify for bridge loans.<\/p>\n\n\n\n

Loan terms and requirements vary, but in general, you can borrow a maximum of 80% of your current home\u2019s value<\/a>. A bridge loan\u2019s term length typically runs anywhere from six months to a year. Because the life of the loan is so short, interest rates are often higher than you would find with a personal loan or traditional mortgage.<\/p>\n\n\n\n

How a bridge loan can help you buy your next home<\/strong><\/h3>\n\n\n\n

In a perfect world you\u2019d be able to sell your current home and buy your next one on the same day to use your proceeds for a down payment. But real estate is never that simple, is it?<\/p>\n\n\n\n

Let\u2019s say you got a new job in a different city that starts in two weeks. You need to buy a new home as soon as possible, which means you may not have time to sell your current one first.<\/p>\n\n\n\n

That\u2019s where bridge loans come in. These short-term loans can fund your entire down payment or supplement your savings so you can make a 20% down payment and avoid private mortgage insurance<\/a> (PMI).<\/p>\n\n\n\n

Bridge loans also allow you to make an offer that isn\u2019t contingent on the sale of your current home. This is especially helpful in a seller\u2019s market when non-contingent offers often win over other bids.<\/p>\n\n\n\n

How much does a bridge loan cost?<\/strong><\/h3>\n\n\n\n

Since they\u2019re so short-term, real estate bridge loans tend to have higher interest rates than other types of financing. Rates can be as high as 8.5-10.5%, depending on the market. If you have excellent credit and a very low debt-to-income ratio (DTI), you may be able to get a rate as low as 6%, but this depends on the market and your location.<\/p>\n\n\n\n

You also have to pay closing costs<\/a>, which can be several thousand dollars or 1.5-3% of the overall loan amount. Your closing costs may include various fees, such as:<\/p>\n\n\n\n