Buying and selling a home is an incredibly complex process with too many moving parts to count. Sometimes buyers want to move quickly, but sellers need more time to figure out where they’re going next. Some sellers are desperate to sell their house, but can’t seem to keep it clean enough between showings.
Many consider these pain points to be unavoidable truths of the traditional homebuying process. But that’s simply not the case.
One possible solution to your homebuying aggravation could be a bridge loan, but they come with their own strings attached.
For a bridge loan with all the benefits and none of the drawbacks, turn to the Knock Bridge Loan — but before we get too far into the weeds, let’s get back to basics…
What is a bridge loan & how does it work?
Sometimes called a “bridge loan mortgage,” a bridge loan is a short term loan for borrowers if they’re looking to buy their new home before selling the old one. It literally helps them “bridge the gap.”
In other words, if you’re looking to buy before you sell you may hit some challenges, especially if you need the money from the sale of your current home to purchase the new home. Or you can't qualify paying for your old mortgage and your new mortgage at the same time. A bridge loan gives you extra financing and flexibility to do what works for you.
How exactly does it work?
Generally speaking, a traditional bridge loan functions as an equity advance. Borrowers get access to the equity they’ve built in their current home to be used as a down payment on their new home. This assumes two things. First, that the borrower qualifies for a new mortgage before paying off the old one. And second, that the borrower is interested in paying two mortgages.
The Pros and Cons of a Traditional Bridge Loan
|Buying before Selling
Flexibility is the name of the game. A bridge loan allows homeowners to go out and buy their new home before their old one sells.
Traditionally, many homeowners can’t fund the entirety of a home purchase without the funds from selling their current home. A bridge loan can help alleviate that burden.
|High Interest Rates
Many lenders don’t offer bridge loans because the short period makes it hard for them to make money.
Those that do offer bridge loans often attach a higher interest rate to the loan. Bridge loan rates today can be as high as 30%!
|Making Non-Contingent Offers
Because a bridge loan lets you buy before you sell, you can put an offer on a new home that doesn’t have a home sale contingency.
Without a sale contingency, your offer will be more competitive and help you win in a bidding way against other potential buyers.
When you use bridge loan funds to buy before you sell, you’ll end up owning two houses, at least for a little bit.
And until your old home sells, you’ll be stuck paying two mortgages.
|Putting More Money Down
Putting down +20% on your new home purchase can allow you to avoid getting Private Mortgage Insurance (PMI).
Additionally, a bigger down payment also lowers the size of the total loan amount, ultimately lowering your monthly payment over the life of the loan.
|It Can be Hard to Qualify
To qualify for most bridge loans, you’ll need a large amount of equity in your current home. You’ll also need a higher-than-average credit score.
On top of that, bridge loans increase your outstanding debt, and as a result your DTI, reducing the amount of new mortgage you qualify for!
|Avoid the Traditional Headaches
Buying before you sell erases a whole bunch of headaches from the traditional homebuying process — and there’s a lot of them.
No more living through repairs and inspections. No more keeping the house pristine for showings. No more scrambling to get out of the house once you're under contract. No more finding temporary housing.
|The Risk Factor
Bridge loans generally cover a 6-month or 12-month period. Once that period ends, you’ll be responsible for the repayment of the loan in full.
If your home takes longer to sell, covering the bridge loan costs could become a heavy burden for a homeowner to bear.
Want the best of both worlds? Want all the pros of using a bridge loan with none of the cons?
We have great news.
Welcome to the next generation of bridge loans
Enter the Knock Bridge Loan, giving you all the best parts of a bridge loan — and none of the, let’s say, less than favorable parts.
Through our innovative lending solution, you can use up to $500,000 of the equity in your current home to:
- Buy your new home before selling the current one
- Make a stronger non-contingent offer, more likely to beat out other buyers
- Put down up to 30% and save more in the long term
- Get up to 6 months of mortgage payments on your old house — No double mortgages!
- Get up to $35,000 in Home Prep funds to get your house in peak selling condition
- Buy down your mortgage rate
- Pay down debts to qualify for more
- Cover closing costs!
That’s a long list of pros, and it’s only getting longer. These incredible Bridge Loan benefits are interest-free for up to six months!2 And! The innovative solution works with local lenders across the country! If all else fails, the Knock Bridge Loan comes with the Knock Purchase Offer, a back-up offer from Knock in the event your home doesn’t sell in time.
All of that wrapped up into one convenient home loan program.
Want to see if you qualify?
1 Treece, Kiah. “Is A Bridge Loan Right For You?” Forbes, 12 August 2020, https://www.forbes.com/advisor/loans/bridge-loan
2 Actual amount based on borrower’s individual equity position.