Bridge loans can help home buyers in Washington State purchase a new home before selling their current house. This strategy offers several advantages, which we’ve outlined below.
In short, a bridge loan can help you “bridge” the financial gap between buying your next home and selling the current one.
Buying and Selling a Home in Washington State
Many homeowners in Washington find themselves in a situation where they need to buy a new home and sell their current one, at roughly the same time. And it’s not always easy, since you’re essentially juggling two real estate transactions at the same time.
There are basically two ways to buy and sell a home in Washington:
- You could sell your current home first, and move into a short-term rental while you’re house hunting for the next property.
- You could buy your next home before selling the current one, which means you might end up juggling two different mortgage loans for a period of time.
This article focuses on the second scenario above – buying your next home in Washington before selling the current one. A bridge loan can help you accomplish this goal. Specifically, it allows you to turn some of your home equity into cash that can be applied toward the down payment on your next purchase.
Benefits of Using a Bridge Loan
Bridge loans can be useful in a variety of financing situations. But let’s zero in on the home-buying benefits, in particular. Here are some of the advantages of using a bridge loan when buying and selling a home in Washington state.
You can buy your next home before selling the current one.
This financing option allows you to leverage the equity you already have, to help cover the down payment on your next purchase.
With a bridge loan, you could convert some of your existing equity into cash. You could then apply that money toward the down payment on your home purchase. In other words, you can make an offer on your next home without having to sell the current one first. This paves the way to other advantages, which are explained below.
You can make a non-contingent (and more appealing) offer.
Some homeowners in Washington choose to make an offer on a house before selling their current homes. To protect themselves during this process, they sometimes make their offers “contingent” upon the sale of the current home.
This is known as a home sale contingency. Basically, it means the buyer has the right to back out of the deal if they’re unable to sell their current home.
The problem is that a contingent offer could be less appealing to sellers, since it has more “strings attached.” This could become an issue for the buyer, especially in a competitive real estate market where sellers receive multiple offers.
But if you use a bridge loan when buying your next home in Washington, you could avoid these potential issues entirely. You could make a non-contingent offer that would be more appealing to sellers.
In this scenario, you wouldn’t need to sell your current home before buying the next one. You could use the money provided through the bridge loan to cover your down payment and other purchase-related costs on the next property. So a sale contingency wouldn’t even be needed.
You can move only once, instead of twice.
If you sell your home before buying the next, you’ll need somewhere to live in the meantime. The way it usually works is that a homeowner will sell their home, move into some kind of short-term rental situation, and then move again later when they purchase the next house.
But this multistep process can be challenging, costly and disruptive. Anyone who has moved before can agree that the fewer moves, the better.
By using a bridge loan, you can simplify the moving process because you only have to do it once. This type of financing allows you to buy the next house while staying in your current one, resulting in less hassle and headache. Later on, when you complete the sale of the previous home, you could use those proceeds to pay off your bridge loan balance.
Rising Prices Have Given Homeowners More Equity
Home prices across the state of Washington have risen substantially over the past few years. As a result, homeowners who have lived in their homes for a while might have a lot of equity built up.
Due to rising prices, there are thousands of homeowners across Washington who could benefit from a bridge loan (or a similar financing option). Generally speaking, the more equity you have in your current house, the more you could borrow with a bridge loan, HELOC, etc.
Here’s the bottom line to all of this. Having equity puts you in a better position when it comes to selling your home and buying another one. To facilitate the process, you could convert some of your equity into cash and apply it to your next purchase. The bridge loan is one of several ways to accomplish this goal.