You have been waiting to sell your current property to buy your dream house. But then someone else snatches that property. Suddenly, the real estate FOMO starts to kick in, making you feel you have missed opportunities in the market. This sense of urgency can even push a cautious buyer to act swiftly. A bridge loan can offer a potential solution to secure your dream property.
A bridge loan is a type of short-term financing that helps to fill the gap between buying a new home and selling a current one. However, one must understand that bridge loans come with specific qualification requirements. Here’s what you need to know.
Solid Credit History
Before approving a bridging loan, the lender looks at your credit history. This ensures that you’ll pay back on time and are financially responsible. Generally, a credit score of 650 or higher is required for approval. The higher your score, the better the loan terms you may secure.
Substantial Home Equity
Your current home’s value isn’t just about memories. It’s also your ticket to your next chapter. Lenders typically look for at least 20% equity in your current property for a bridge loan. Think of equity as the portion of your home that’s truly “yours” after accounting for what you still owe.
Proof of Income
Just like you’d want to know a friend can pay you back before lending them money, lenders need reassurance, too. They’ll ask for documents that reflect your financial status. It may include recent pay stubs showing your current income, tax returns reflecting your longer-term financial picture and bank statements demonstrating your saving habits.
A Clear Exit Strategy
Bridge loans are short-term solutions, so lenders will ask how you plan to repay the loan. Typically, this involves selling your current home within a specific timeframe, refinancing, or using other financial resources.
Low Debt-to-Income Ratio
Your debt-to-income (DTI) ratio should ideally be below 43%. A lower DTI means you have manageable debt, making you a more attractive borrower.
Bridge loans can help you secure your dream home without waiting for your current one to sell, but qualification depends on your financial standing.
Looking for expert guidance? Sapphire Estate is here to help. Contact us today to explore your options!
