Leverage Your Home Equity to Buy Before You Sell: Maryland Bridge Loans Explained
Trying to sell your house while buying a new one in Maryland? It can feel like a real headache as you strive to sync those timelines. You might find your dream home only to be frustrated that your current place hasn’t sold yet, leaving you short on funds and at risk of losing out to other buyers. On the flip side, if you’ve sold your home but haven’t secured a new one, you could end up without a place to live. Perfectly aligning these timelines is rare, and many homeowners simply resign themselves to the stress of selling first, moving into a temporary rental, and then searching for their next home, only to move again once they find it.
However, there’s a strategic solution that might be the perfect fit for your situation: a bridge loan. This short-term financing option offers a seamless transition by empowering you to purchase your new Maryland home before selling your old one. This ensures you don’t have to juggle selling, moving, and buying within a tight timeline.
In this guide, we’ll present the mechanics, pros, cons, and alternatives to bridge loans, in Maryland, ensuring you have all the tools you need to make the best decision on how to “Buy Before You Sell.”
DISCLAIMER: This post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Maryland, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is an interim financial solution for homeowners designed to facilitate the purchase of a new home in Maryland before selling your current one. It uses the equity in your existing home to provide immediate funds for a down payment and closing costs on your new property.
Essentially, it acts as a temporary bridge, filling the financial gap between buying your new home and selling the old one.
Bridge loans are typically short-term, lasting six months to a year, with the possibility of extension based on your financial situation and the lender’s policy. Due to their brief term and the inherent risks for lenders, these loans often have slightly higher interest rates than traditional mortgages.
How does a bridge loan work in Maryland?
In Maryland, a common scenario in which a bridge loan might be incredibly useful is when you’re eager to secure your new home before your current property has sold.
Here’s how it typically unfolds: You use the equity from your existing home to cover the down payment and closing costs of your new property. This strategy is particularly advantageous in Maryland’s competitive real estate market, where waiting to sell before buying might mean missing out on your ideal home.
Who handles the loan: Often, the same lender who’s handling your mortgage for the new home will also provide your bridge loan. They usually require that your current home is actively listed for sale and offer the bridge loan for a period ranging from six months to a year.
Balancing debt: When evaluating bridge loan applications, lenders calculate the debt-to-income ratio (DTI) by considering the payments on your existing mortgage, the payments for the new home, and any interest-only payments on the bridge loan. However, if your current home is already under contract and the buyer is fully approved for their loan, your lender might only consider the mortgage payment of your new home in the DTI calculation.
This flexibility is crucial as it helps ensure that you can comfortably manage payments on both properties during the transition period, particularly if your current home doesn’t sell immediately.
What are the benefits of a bridge loan in Maryland?
In Maryland, bridge loans offer several benefits that make them an attractive option for homebuyers facing the common dilemma of needing to buy a new home before selling their old one. Here are some of the key advantages:
