When navigating the world of home financing, one common challenge is how to buy a new home before selling the current one. At Better Rate Mortgage, we often guide our clients through this scenario, and two common solutions stand out: bridge loans and recasts. While both options can help, one may be a better fit depending on the situation.
Here’s a breakdown of both strategies and their pros and cons:
What Is a Bridge Loan?
A bridge loan allows homeowners to borrow up to 85% of their current home’s value to help fund the down payment for their new home. For example:
- If a home is worth $100,000 and the homeowner owes $60,000, they could borrow up to $25,000 (85% of $100,000 – $60,000).
While bridge loans can be useful, they come with drawbacks. A bridge loan is essentially a full refinance, which means borrowers are subject to full loan costs. Additionally, the borrower must qualify with both mortgage payments during the transition period.
Click here to get started today
What Is a Recast?
A recast offers a simpler and often more cost-effective solution. Here’s how it works:
- The buyer puts down as little as 5% on their new home.
- After selling their current home, they apply the proceeds to the new mortgage.
- The lender recalculates (or “re-amortizes”) the loan based on the reduced balance, while keeping the original loan terms intact.
- The recast typically costs $200-$300.
This approach avoids the costs associated with a full refinance, making it an attractive alternative for many buyers. However, as with a bridge loan, the borrower must qualify for both mortgage payments until their current home is sold.
A Third Option: Simultaneous Close
Another option is a simultaneous close, where both the sale of the current home and the purchase of the new home happen at the same time. In this scenario, the payment for the home being sold doesn’t need to be factored into the borrower’s qualifications. However, this often requires the offer on the new home to be contingent on selling the current home, which could make the offer less competitive in today’s market.
Click here to see what you qualify for today
Which Option Is Right for You?
While bridge loans can be helpful in certain cases, we often recommend recasts as a more cost-effective and flexible solution. The right choice ultimately depends on your financial situation, timeline, and market conditions.
At Better Rate Mortgage, we’re here to help you and your clients navigate these decisions with ease. Our goal is to provide personalized solutions that make the home-buying process smoother and more affordable.
Click here to find out your options today
Why Choose Better Rate Mortgage?
At Better Rate Mortgage, we don’t just offer competitive rates—we provide a streamlined, personalized experience to help you achieve your homeownership goals. Whether you’re a realtor looking for a trusted partner or a buyer exploring financing options, our team is here to guide you every step of the way.
Ready to Learn More?
If you’re working with clients facing this scenario, reach out to us today. We’re happy to provide guidance and discuss the best options to fit their needs. Let’s work together to make homeownership achievable for more people.
Contact Better Rate Mortgage Today
Sean Zalmanoff 12/11/2024
