Bridge Loans in Tennessee: How to Unlock Home Equity to Buy Before You Sell
Explore the ins and outs of bridge loans in Tennessee: benefits, drawbacks, costs, providers, and modern alternatives. Learn how you can ‘Buy Before You Sell.’
Selling your current home while trying to buy your next one can feel like walking a financial tightrope. The process demands careful timing, especially in Tennessee, where tight inventory and high prices add to the challenge. You might feel like your only option is to sell, move out, and find a temporary place to stay while you look for a new home.
But what if there was a way to simplify this balancing act? A bridge loan could be the solution you’re looking for. This short-term financing option helps you purchase a new home before selling your old one, giving you more flexibility and peace of mind.
In this guide, we’ll explain how bridge loans work and when they might be the right fit for Tennessee homeowners.
Yes, You Can Buy Before You Sell. Why Move Twice?
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
DISCLAIMER: As a friendly reminder, this post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Tennessee, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
When it comes to real estate, a bridge loan is a short-term financing option designed to help you transition between selling your current home and buying a new one. By leveraging the equity in your existing property, a bridge loan gives you access to cash for a down payment and other upfront costs for your next home purchase.
Though often more expensive than traditional mortgages, bridge loans are valued for their speed and convenience, helping you avoid the hassle of waiting for your current home to sell.
Bridge loans are also commonly referred to as:
- bridge financing
- bridging loans
- interim financing
- gap financing
- swing loans
How does a bridge loan work in Tennessee?
A common scenario where a Tennessee homeowner might need a bridge loan is when you need to purchase a new home before your current one sells. In this case, a bridge loan allows you to tap into the equity of your existing home to cover the down payment and closing costs for your next property.
Often, the lender handling your new mortgage can also provide the bridge loan. Typically, they require your current home to be listed on the market and offer the bridge loan for a term of six months to one year.
Your lender will also review your debt-to-income ratio (DTI), which includes the payments for your current mortgage, the new mortgage, and potentially the interest-only payment on the bridge loan. If your existing home is under contract and the buyer has loan approval, your lender may focus solely on your new mortgage payment in their calculations.
Lenders aim to ensure you can handle the financial obligations of both properties if your current home doesn’t sell as quickly as expected.
What are the benefits of a bridge loan in Tennessee?
There are several benefits to using a bridge loan that can help you as a Tennessee homebuyer.
- You can make a non-contingent offer: Strengthen your offer by removing the need to sell your current home first.
- You only have to move once: Skip the hassle of finding temporary housing between buying and selling.
- You can prepare your old home: Move out and focus on staging to attract buyers.
- Some lenders don’t require payments during the loan period: This reduces financial stress while managing both properties.
- You can move on the right property quickly: Act fast without worrying about the sale status of your current home.
What are the drawbacks of a bridge loan?
While a bridge loan can provide valuable flexibility when buying and selling a home, it does come with some drawbacks:
- Additional loan costs: Expect to pay underwriting fees, origination fees, and other upfront expenses.
- Added financial stress: Managing two mortgages and a bridge loan, even if interest-only, can stretch your budget.
- More difficult qualification: Approval can be tougher than for a traditional mortgage loan.
- Potential delays in underwriting: The process might take longer than anticipated, causing frustration.
Lenders will also evaluate the equity in your current home. If you owe more than 80% of its value, you may not qualify for a bridge loan.
When is a bridge loan a good solution?
A bridge loan isn’t a one-size-fits-all solution, but it can be a lifesaver for certain real estate situations.
Some scenarios where a bridge loan might be a good solution include:
- You need the equity from your current home to fund a down payment for your new home.
- You can’t afford the cost or hassle of a double move and temporary housing.
- Your ideal home just became available, and you need to act quickly to secure it.
- Your offer’s home sale contingency has been an obstacle, and you want immediate purchasing power.
- You’re unable to prepare or stage your home while living in it, and want the benefits of selling a staged home, which often sells faster and for a better price.
