"The real estate market is on fire! Everything is selling so fast!" - Have you been hearing this a lot lately? 

As a homeowner you're probably thinking 'this is great' and you'd like to take advantage of the high demand and cash in on the equity you have in your home.  This is a great idea in theory but there is a bigger problem at hand; LOW inventory!  While many homeowners are taking advantage of the market, you might be wondering where you'll go next and don't want to end up in a situation where the timing isn't right and you have no where to go.  If that is a top concern of yours, there are options that you may not have known of or thought about.  

One of those options is a bridge loan.

What is a Bridge Loan?

A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. It allows the user to meet current obligations by providing immediate cash flow. Bridge loans are short term, up to one year, have relatively high interest rates, and are usually backed by some form of collateral, such as real estate or inventory.

Homeowners who are selling one property and buying (or building) another may face challenges with coordinating both events, especially in competitive environments. Many homeowners who are moving rely on money they’ll get from the sale of their current home to fund the purchase of a new one. But closing dates don’t always align, and when that happens, you can find yourself in a precarious financial balancing act. That's where bridge loans come into play!  They can be a useful solution to this dilemma.

How a Bridge Loan Works

Also known as interim financing, gap financing, or swing loans, bridge loans bridge the gap during times when financing is needed but not yet available. 

Many sellers have equity in their existing real estate. There may be a gap in the date those funds are available if a new home must be closed before the old real estate sells. Bridge loans are temporary loans that bridge that gap. It is a substitute for home equity loans (since many lenders do not approve home equity loans for properties on the market).

The underwriting process and criteria for bridge loans will be very different from typical mortgages. Because bridge loans are short-term, they are not normally submitted to the secondary market and therefore need not use the same standards. Minimum credit scores, debt-to-income ratios, and other qualifying factors may range among lenders. During the life of the bridge loan, the homeowner will essentially have two mortgages (one on the home listed for sale and one on the new property). Therefore, the borrower must be able to afford both.

Whether you should obtain a bridge loan is dependent on your financial and real estate goals. A local mortgage company that provides bridge loans can offer more comprehensive information beyond the MA bridge loans.