What is a HELOC and Bridge Loan?
How HELOC or Bridge Loan Can Help You Buy Your Next Home?
Buying and selling a home all at once can be stressful. If you sell first you could end up with no place to live until you find your perfect home. And if you buy first, you might get stuck having to pay two mortgages at once. However, most people can’t afford to pay for two mortgages at the same time or buy a home with cash.
Today, we will discuss the difference between HELOC and Bridge Loan so you can decide what’s best for you.
HELOC and Bridge Loan
HELOC and Bridge Loan are the usual financing options for short term financing to facilitate the purchase and sale of a home.
What is a HELOC?
A home equity line of credit often called a HELOC and pronounced hee-lock. It’s a loan which the lender agrees to lend a maximum amount within an agreed period called a “Term“. So it’s where the collateral is the borrower’s equity in his or her house.
What is Bridge Loan? (Gap Financing)
A bridge loan is a short term loan lent by the bank to cover the interval between buying a house and selling your old home. Note that bridge loans can be difficult to find as not many banks offer them.
Which is Best for You? HELOC or Bridge Loan?
A HELOC is the best option but only if you can afford the payments for the old and new mortgage, and any other debt obligations you may have.
A bridge loan is more expensive but you do not have to make payments on it or the old mortgage until the home is sold.
If you are not sure, you can arrange a HELOC and have it in your back pocket when you start looking for your new home. The HELOC will be available if and when you need it. It costs you very little, and you pay nothing on it until you access the credit.
So, what do you do when you have trouble selling your own home in order to move up? Basically, you have two options, the traditional bridge loan or a home equity line of credit, (or HELOC) secured against your current residence.
Whether you use a HELOC or a Bridge Loan, you should apply for it and close before you list your home for sale. Some lenders will not qualify you for a loan if your home is listed for sale. Additionally, your lender will factor these loans in when qualifying you for the loan on your new home.
Want to learn more? Then watch this video to learn the more options you have if you are thinking about whether to buy or sell your home first.
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