Perhaps you’ve thought about buying and selling a home on the Kihei real estate market simultaneously, but you aren’t sure how to make both transactions work financially. You don’t want to sell your current home before buying a new one, as you’d rather not have to worry about where you’ll live in the interim. On the flip side, if you buy before selling, you might not have the appropriate funds for your new home’s down payment.
The purpose of a bridge loan
The bridge loan accomplishes what its name implies: it “bridges” the two transactions (buying and selling) together in a more streamlined, simplified manner. Essentially, the bridge loan is a type of short-term loan that provides you with the funding necessary to cover the down payment and the closing costs of your new home without needing to sell your current property first.
By using a bridge loan, you can move forward with purchasing your new home even if you don’t have the proceeds from selling your previous one. You would take out the bridge loan with the expectation that you would pay it back with the proceeds from selling your Kihei home.
Understand the terms of the loan
Just like with any loan, you will want to have a firm grasp of the specific terms of the agreement, such as the interest rate and how long you can take to pay the loan back. You’ll quickly discover that bridge loans often have higher interest rates and fees than what a typical loan would require. It’s also common for bridge loans to have a shorter repayment period, with some loans being due in full within the next two to three months. As you speak with different lenders, make sure you ask plenty of questions to develop a complete understanding of what’s required of you. It’s also wise to determine whether or not there are any fees associated with the loan.
Determine how you will repay the loan
It’s essential to have a contingency plan in place in case you can’t sell your home as quickly as you had hoped. If your home stays on the Kihei real estate market for several months, how will you pay back your loan? In this scenario, refinancing the loan might be an option. You may also look into the possibility of obtaining additional financing or revisiting the terms of the agreement with the lender.
Shop around for the best deal
Too many borrowers don’t speak with multiple lenders before choosing who they will work with. You could potentially save thousands of dollars over the duration of your loan by taking the time to shop around and see who can offer you the best deal. Each lender will provide you with a different loan amount and interest rate, and you should not be afraid to talk with three or four potential lenders before you make a final decision.
Remember that if you don’t like your initial interest rate offers, you can improve your position by raising your credit score. The easiest way to do this is to reduce the amount of your credit balance that you use each month and prioritize paying all bills on time.
Consider the risks
There are unique risks that come with taking out a bridge loan, especially if it involves dipping into the equity that you currently have in your home. You could lose that equity if you cannot repay the loan or sell your current property, as some lenders will require you to put forth your home equity as a form of collateral.
Choose a trustworthy lender
Before you make a final decision about the lender you’ll do business with, take some time to do your own research. Read reviews from past clients to hear about the experiences they had. If you aren’t sure where to find the best banks or companies to work with, consider asking your real estate agent for their recommendations. They have experience working with clients who use bridge loans, and they may know exactly who you should speak with.
Keep reliable records
As you start compiling documents and loan records, you’ll want to stay organized and make sure you keep everything together. This will keep you from missing payments or falling behind schedule. You’ll also know precisely where to go when you have questions or need to refer back to the loan terms.
Consider an alternative if bridge loans aren’t for you
If you decide that a bridge loan isn’t the best option for you, it doesn’t mean that you must give up on the idea of buying and selling a home at the same time. There are other options that you can consider that will allow you to move forward with purchasing a new property while you wait for your current home to sell.
If you need extra money to cover a down payment or closing costs, you could pursue a HELOC (Home Equity Line of Credit) or ask the seller if they would consider a seller financing program. Temporarily renting another home is also an option if you want to leave your current home vacant as you attempt to sell.
Partner with the ‘Ohana Real Estate Team
If you want to move forward with confidence, you’ll want to team up with the best in the business. With a commitment to top-notch service and a focus on success, the ‘Ohana Real Estate Team is adept at helping their clients navigate through multiple Kihei real estate transactions at the same time. Contact their office if you have additional questions about bridge loans or if you are seeking expert guidance for buying or selling a home in the area.