Should I opt for a bridge loan instead or a zero-down-payment mortgage?

Are you ready to upgrade to a new home? Maybe your family is growing and you need more space. Or you’re better off financially and ready to move on from your starter home. Perhaps you’re just ready for a change. Ideally, it makes sense to sell your current home first and use the profits to cover the down payment of your new home, but that isn’t always easy. Selling a home can take months. That means any offers you make will be contingent on the sale of your current home, which is less likely to be accepted by a seller, or you’ll have to wait to make any offer at all. Luckily, this isn’t your only option.

If you’re in the market to sell your current home and purchase another but don’t have enough money in cash for a down payment, you can opt for a bridge loan or a zero-down-payment mortgage. Either option can get you into your new home faster, but which is best for your situation? What are the specifics of these loans? What are the differences between them? How do you choose? Read on to find out.

What is a bridge loan?

A bridge loan provides a way to move from one home to another before the first home has sold. While bridge loans can also be used in different areas, they are primarily used for real estate. These loans are also known as interim and/or gap financing and are sometimes called swing loans. They allow a homeowner to use the equity in their current home to put a down payment on a new home while they are still waiting for the current home to sell. Solarity bridge loans provide financing on up to 90% of the appraised value of your current home.

What makes a bridge loan different from a mortgage? Mainly, bridge loans are short-term loans. They are meant to cover financing for a specific, transitional time, whereas mortgages typically have periods of up to 30 years. Bridge loans last until the shorter term is over, often a year, or until the homeowner secures more permanent financing – such as selling the current home to pay off the bridge loan. In the meantime, the borrower makes interest-only payments to keep the loan in good standing.

Who benefits from a bridge loan?

Having bridge loan financing while waiting for a current home to sell has many benefits.

First of all, it helps if the people have already found the house they want to buy and move to. If they wait until their current house sells, it may be too late. The house of their dreams could already be gone.

Likewise, a bridge loan also means the homeowners don’t have to rush to sell their current home. This could allow them to do more work on the home to increase its value and gives them time to make sure they’re accepting the best offer.

By providing extra time, bridge loans help make this transitional period much easier. Moving from one home to another should be exciting, not stressful.

Solarity bridge loans also allow for extra convenience. When you close on your new home, you can close on the bridge loan at the same time.

However, one thing to keep in mind is that bridge loans can sometimes come with higher interest rates.

Wondering if a bridge loan is the right call for you? Don’t hesitate to reach out to Solarity’s Home Loan Guides. We’ll look at your situation and discuss your options. We’re ready to answer any questions you have about this type of home loan.

 

What is a zero-down-payment mortgage?

It was once standard that prospective homeowners put a 20% down payment on a home, but times have changed. Now, there are plenty of other options that make homeownership easier and more attainable, whether you’re purchasing your first home or your fifth. In addition to low-down-payment mortgages, a zero-down-payment mortgage is a popular choice. The benefit of this option is in its description: the down payment amount is 0%. And when you want to purchase a new home but don’t have enough cash for a down payment, this could be a way to do so.

Essentially, you maintain your original loan until your current home sells, and in the meantime, you take out a second separate mortgage—in this case, a zero-down-payment mortgage—to purchase a second house. You make full payments on both loans until the first home sells and you pay off the loan.

How does a zero-down-payment mortgage compare to a bridge loan?

While either type of loan could get you a new house before your old house has sold without the need for a contingent offer, the options aren’t equal. Let’s take a look at their main differences when it comes to buying that new home.

Firstly, while a zero-down-payment mortgage doesn’t require a down payment, a bridge loan provides you with a down payment by leveraging the equity you’ve built up in your current home. Just having a down payment can mean better interest rates and terms for your new mortgage. It can also mean the difference between needing to pay for PMI or not on your zero-down loan.

Also, taking out a second mortgage, even without a down payment, means you have two mortgage payments you need to make in full each month. With a bridge loan, you only pay the mortgage interest, meaning your financial burden each month is a little less.

For many homebuyers, a bridge loan will be the better option, but it’s important to talk to an expert before you move forward.

How Solarity helps you choose

When you borrow with Solarity Credit Union, you’re in the hands of experts. If you’re considering your home loan options, reach out to us. Our experts will look over your important information, including income and credit history. Once we get a thorough idea of your personal situation, we’ll determine which of our home loans will benefit you the most.

You can find plenty more information about bridge loans, zero-down-payment mortgages and other home loan options on Solarity Credit Union’s website. You’ll find helpful tools and advice, including a mortgage calculator. No matter which option is right for you, we’ll make sure the home loan and homebuying processes are as easy as possible. Apply online and get started today. We look forward to helping you find your new home.