How BRIDGE LOANS Work - Buy a New House Before Selling Your Old House

You currently own a house, but you want to move. And you’re so excited that the value of your current house has shot up…but so has the cost of all the houses you’re interested in buying. What do you do? All that and more in this video.

Hello everyone, my name is Cameron Stephens, the entertainment industry’s real estate agent and the owner of Stephens Real Estate, a real estate experience tailored to the creative client.

Today we are going to talk about one way to solve one of the biggest problems I help people solve in today’s market: how to financially bridge the gap between the house you want to sell and the house you want to buy.

The key word there is bridge, and so it’s no surprise that one of the most popular ways to work through this situation is with what is called a bridge loan.

For many people, they can afford the new home they want to buy even with rising prices, but only with the profit from selling their current home.

And if you don’t want to make offers that are contingent upon the sale of your property, which is quite difficult to do in Los Angeles, and you don’t wish to find some kind of short term rental situation after selling your current home while attempting to buy your new one, you’ll need to purchase your new home before selling your old one, and therefore don’t have access to that profit quite yet.

Bridge loans give you access to additional money to purchase a home by allowing you to tap into added funds, or any equity that you hold in your current home prior to its actual sale.

Depending on how long you’ve owned your current home, ie how long you’ve been making payments and building equity, and how much your home is risen in value, a lender can lend you up to 80% and in some cases 90% of your home’s current value to use as a part of a down payment and closing costs for the home you want to purchase.

Then, when you buy your new home, and successfully sell your old home, you use your profit to pay off the bridge loan in full so that you’re only left with the new loan on the new home.

There are other ways of structuring a bridge loan, like one that has monthly payments or has a longer term of 1 to 3 years, but generally speaking, a bridge loan carries a higher interest rate, so you want to pay it for the least amount of time possible.

Generally speaking, the lender that you work with to provide the loan on your new home will be the same one providing the bridge loan. That keeps things tidy and all under one umbrella, and a lender usually requires that so they can accurately evaluate the risk of the entire transaction.

Here are some of the pros of a bridge loan:

A bridge loan offers you the opportunity to buy a new house before you’ve sold your current home.

You can make an offer on a new home without having to implement a sale contingency.

It can provide additional funds in the event of a sudden or time-sensitive transition.

It presents a helpful short-term solution for financing your way through periods of uncertainty.

There is often the prospect of no monthly payments for the first few months.

There’s potential for interest-only payments, or payments that are deferred until you sell.

And here are some cons:

​​Bridge loans come with higher interest rates than conventional financing

Most lenders require a homeowner to have at least 20% home equity built up before they’ll extend a bridge loan offer.

Many financial institutions will only extend a bridge loan if you also use them to obtain your new mortgage.

You may own two houses for a time and sometimes you must be able to qualify for the payments on both houses in a worst case scenario

Because bridge loans are secured with your existing property, it can be foreclosed upon by a lender in the event payments are not met.

To summarize, a bridge loan is a very popular way for home sellers to bridge the gap between selling their current home and purchasing a new home. I have a lender that I work with that can assess your current financial situation and what your goals are and help make something creative like a bridge loan work for you so you can purchase the home you’re incredibly excited about.

Ok there you have it! Thank you for watching, I hope you learned something about bridge loans, something I’ve increasingly advised clients on in this current market.

At Stephens Real Estate we specialize in working with creative professionals, entrepreneurs, and especially people in the entertainment industry because I spent 7 years of my life working in animation and visual effects. That is why I designed Stephens Real Estate to be tailored to the creative client.

I also designed a few value adding programs for both buyers and sellers that no one else is offering. For buyers, you get all of your inspections paid for, no questions asked.

Sellers, we maximize the price of your most valuable asset by giving you fresh paint, new floors, updated landscaping and full staging at no cost to you.

So, if you like my energy and personality, and think my expertise and the programs I offer would benefit you, it’s never too early to get the conversation started. Additionally, I have a fantastic referral program, so if you know someone that would benefit from connecting with me, I’d absolutely love an introduction.