Sep 23, 2021
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I'm often asked, by people who want to buy a house before selling the house they already own… How do I get a bridge loan?
Bridge loans are really uncommon these days. They were a "thing" back before the last recession, but they just don't exist like they used to. That being said, we do have strategies if you'd like to buy a house before you sell the house you already own… we call that house the "departure residence."
The exact strategy that you employ is going to be different for different people based on how much money you have for a down payment on the house you're buying, whether or not you need cash from your departure residence for that down payment, and whether you can qualify to own both houses at once.
The first strategy is a Home Equity Line of Credit. You can take out a HELOC (we love acronyms in the mortgage industry or the MI) on the departure residence to give you the cash you need for a down payment on the house you want to buy. Now, you're not going to be able to borrow 100% of the value of your property. Your bank will probably loan you 80-90% of the value. And you'll have to subtract any mortgages you already have from that amount.
So let's say you own a home valued at $500K, and you have a $300K mortgage. That means you could probably get a HELOC for $100K-150K. And that is cash that you could use as a down payment to purchase a new house. After you move, you sell the departure residence and pay off the HELOC.
The second strategy is, what I like to call, the Low Down & Recast. A standard conventional, Fannie/Freddie mortgage loan only requires a 5% down payment. If you already have at least 5% down - either in cash, investments, or retirement accounts, you can purchase a new home then replenish your cash or investment account after the departure residence sells. Then you can what we call a "re-cast" of the new home loan.
A recast re-calculates your monthly payment based on the current principal balance instead of the original loan amount. You keep the same interest rate and the same term (payoff date). The lender just decreases the payment. So if you start off with a $500K loan amount then pay it down to $200K, your payment is lowered to reflect that.
A recast is only available on conventional loans. Government and jumbo loans aren't eligible. And there is a small charge. Like $300 not much.
Recasts are a fantastic alternative to a refinance for lowering your payment because there are no closing costs and you don't have to worry about your interest rate increasing.
Another brand new tool that we have in our toolbox is called Buyer Accepted. This is a new program that is only available through the lender I work for, New American Funding. Buyer Accepted is a subsidiary of our company. And they will actually buy the house for you with cash, then turn around and sell it to you. You get the advantage of being a cash buyer. There is even an option to live in the new home before selling your departure residence - they'll rent it back to you. And you don't have to qualify for both mortgages at once.
You don't have to have a house to sell. You can take advantage of the program as a first time buyer if you think it would be advantageous to be able to go in with a cash offer.
There are, of course, restrictions. This is only available for conventional and VA loans. There are some additional fees. We're not buying a house for you for free. So if that's something you'd like to explore, get in touch with me and I'm happy to walk you through how the program works.
Suffice it to say that if you have a house to sell and you want to own a new home without being homeless in the interim, my team and I have many tools in our toolbox to help you! Please give us a call and we can craft a solution for you.
My name is Emily Caryl Ingram. I lead a team of Mortgage Loan Specialists at New American Funding in Port Townsend, WA. Thanks for watching!