Owner Occupied Bridge Loans

When it comes to purchasing a new home before selling your current one, owner-occupied bridge loans can be a helpful financing option. This type of loan allows homeowners to access the equity in their current home to purchase a new one, with the expectation that the loan will be paid off once the original home is sold.

In this article, we will explore the ins and outs of owner-occupied bridge loans, including how they work, the benefits and risks associated with them, and what you need to know before applying for one.

How Owner-Occupied Bridge Loans Work

Owner-occupied bridge loans are short-term loans that allow homeowners to borrow against the equity in their current home to finance the purchase of a new one. The loan is typically used as a “bridge” to cover the gap between the purchase of the new home and the sale of the current one.

The amount that can be borrowed is typically based on the equity in the current home, with lenders typically lending up to 80% of the home’s appraised value. The loan is secured by the equity in the current home, which serves as collateral for the loan.

Once the new home is purchased, the homeowner will make monthly payments on the bridge loan until the original home is sold. Once the original home is sold, the proceeds from the sale are used to pay off the bridge loan in full.

Benefits of Owner-Occupied Bridge Loans

There are several benefits to using an owner-occupied bridge loan to finance the purchase of a new home. One of the main benefits is that it allows homeowners to access the equity in their current home to finance the purchase of a new one, without having to wait for their current home to sell.

Bridge loans also provide homeowners with the flexibility to move into their new home before selling their current one, which can be especially helpful when trying to move quickly for a job relocation or other time-sensitive reasons.

Additionally, bridge loans can help homeowners avoid having to make two mortgage payments at once, as the loan can cover the gap between the purchase of the new home and the sale of the current one.

Risks of Owner-Occupied Bridge Loans

While owner-occupied bridge loans can be a helpful financing option, there are also risks associated with them that homeowners should be aware of. One of the main risks is that the homeowner is essentially carrying two mortgages at the same time, which can be a significant financial burden if the current home takes longer to sell than expected.

Additionally, bridge loans typically come with higher interest rates and fees than traditional mortgages, which can make them more expensive in the long run. Homeowners should carefully weigh the costs and benefits of a bridge loan before deciding to move forward with one.

What You Need to Know Before Applying

Before applying for an owner-occupied bridge loan, homeowners should consider the following factors:

• Equity in current home: Lenders will typically lend up to 80% of the appraised value of the current home, so homeowners should have a good amount of equity in their home to qualify for a bridge loan.
• Credit score: Lenders will also consider the homeowner’s credit score when determining eligibility for a bridge loan. A higher credit score can help secure a lower interest rate on the loan.
• Timeline: Homeowners should have a clear timeline in mind for when they expect to sell their current home, as this will impact the terms of the bridge loan.
• Closing costs: Homeowners should be aware of the closing costs associated with a bridge loan, which can include appraisal fees, loan origination fees, and other fees that can add up quickly.

FAQs

1. Are owner-occupied bridge loans only for homeowners looking to purchase a new primary residence?

   Owner-occupied bridge loans are typically used by homeowners who are looking to purchase a new primary residence before selling their current one. However, they can also be used for investment properties or second homes, as long as the homeowner intends to occupy the property.

2. How long do owner-occupied bridge loans typically last?

   Owner-occupied bridge loans are typically short-term loans, with terms ranging from a few months to a year. The loan is expected to be paid off once the original home is sold, so homeowners should have a clear timeline in mind before applying for a bridge loan.

3. What happens if I cannot sell my current home before the bridge loan is due?

   If you are unable to sell your current home before the bridge loan is due, you may be able to extend the loan term or refinance the loan. However, this will depend on the terms of the loan and the lender’s policies, so it is important to discuss your options with your lender.

4. Can I use a bridge loan to purchase a new home before selling my current one if I have an existing mortgage on my current home?

   Yes, you can use a bridge loan to finance the purchase of a new home even if you have an existing mortgage on your current home. The bridge loan will typically cover the gap between the purchase of the new home and the sale of the current one, allowing you to move into your new home before selling your current one.

In conclusion, owner-occupied bridge loans can be a helpful financing option for homeowners looking to purchase a new home before selling their current one. However, they come with risks and considerations that homeowners should be aware of before moving forward with one. By understanding how bridge loans work, the benefits and risks associated with them, and what to consider before applying, homeowners can make an informed decision about whether a bridge loan is the right option for them.