Bridge money v home equity loans

Regardless of why you are looking to move, be it for work or because you need a bigger place, you will probably have to sell your old home in order to be able to buy the new one as you probably will not be able to pay for a new mortgage loan before selling your current home. Therefore, you basically have only two options. You can get bridge money or a home equity line of credit. Both have advantages and disadvantages. It depends on your individual financial standing if one or the other is right for you.

Bridge money is a short-term loan that you can get to pay the down payment on your new home and lenders are always happy to help you with a bridge loan, if you qualify. The amount of the loan tends to be small, around three percent of the purchase price. A bridge loan can be borrowed against the equity in your old home, even while the house is listed. This is different from a home equity line of credit, where the financing must be set up before you list your current home. In addition, you are not required to make any monthly payments on a bridge loan until your current home is sold. The balance on the bridge loan, along with the interest, is paid when the old house is sold.

A home equity line of credit is a type of loan wherein the collateral is the equity in your home. What makes it different from a conventional mortgage is that you are not given the entire borrowed amount up front. Instead, after a maximum balance is established, you can borrow any amount up to the maximum. In that way, it is similar to a credit card.

Additionally, the interest rate and fees are lower than on a bridge loan or hard money loan. The downside is that you must take out a home equity line of credit before you list your current home for sale. This means that you will need to plan ahead if you want to use this type of financing. However, with this type of loan, you also have access to funds in the future, without needing to reapply. In addition to a down payment on a new home, these funds can be used for home improvements or repairs, and other recurring expenses.

Regardless of whether you use a home equity loan or a bridge loan through a private money lender, remember that it may limit your ability to qualify for the mortgage you need for your new home as you need to be able to qualify for both the loan you will be using as a bridge as well as the mortgage on the new home. It does not matter that you plan to pay the bridge off as soon as you sell your old home, you still must have enough income to satisfy the lender and show that you can cover the payments on both loans on an ongoing basis.