Owner Occupied Bridge Loans: Top 5 Benefits of Bridge Lending

Owner occupied bridge loans allow a homeowner to buy a new property while still owning their current home. The timing of selling an existing home while purchasing a new one can be challenging for various reasons. Owner occupied bridge loans offer a strategic solution to this common real estate dilemma. This article explores these specialized lending products and how they can help make a homeowner’s transition between homes smoother.

What is an Owner Occupied Bridge Loan?

An owner occupied bridge loan is a short-term financing solution that helps homeowners purchase a new primary residence before selling their existing home. This type of loan “bridges” the gap between buying a new home and selling the current home. Unlike traditional mortgages that can take 30-45 days to close, bridge loans from a private lender can be processed more quickly and have more flexible qualification requirements.

Owner occupied bridge loans usually have terms up to 11 months. The loan amount is determined based on the value of the properties involved in the transaction and the amount of cash the borrower has available for a down payment (if needed). Interest rates for bridge financing tend to be higher than conventional mortgages due to their short-term nature and increased risk for lenders.

Owner Occupied Bridge Loan Benefits

1. Buy Before Selling: Eliminate the Need to Move Twice

One of the primary advantages of a bridge loan is the ability to purchase the next home prior to selling the current property. This flexibility allows the homeowner to act quickly and get the new property under contract, rather than waiting for the existing property to sell. In competitive real estate markets, this advantage can be crucial for securing desirable properties that might otherwise be snapped up by other buyers.

Without bridge financing, many homeowners have to consider selling their current home, moving into temporary housing, and then moving again once they purchase a new property. A bridge loan eliminates this costly inconvenience by allowing for moving directly from the current home to the new one. This benefit not only saves money on moving costs but also reduces the stress of multiple moves with temporary housing.

2. No Debt-to-Income Requirements: Greater Flexibility

Unlike traditional mortgages that require qualification based on a strict debt-to-income ratio (DTI), owner occupied bridge loans are a special exception that do not require meeting a specific DTI. The qualification is based on the value of the property involved and the owner’s equity in the property. This makes qualification easier for many borrowers, especially those with significant home equity but don’t currently have high levels of income. This is especially helpful for retired people and those with complex income situations.

Lenders are primarily concerned with the borrower’s exit strategy for the bridge loan. This is typically going to be the sale of the existing home and potentially a refinance into a long-term traditional loan for the new property, depending on the specific scenario of the borrower.

3. Avoid Contingent Offers: Make Competitive Offers

In many real estate markets, sellers often prefer clean offers without any contingencies. Offers with a contingency that require the buyer to first sell their existing property are not likely to be accepted. Bridge loans allow for making non-contingent offers since relying on selling a current home is not required to complete the new purchase. This strengthens the negotiating position of the buyer and makes the offer much more attractive to sellers. This can help secure better terms or win bidding wars against other buyers.

4. Fast Funding: Quick Access to Capital

Traditional mortgage processes can be lengthy and complex. Bridge loans can be approved same-day in some situations and often have faster closing times. Private lenders can fund bridge loans in 2 weeks, compared to conventional mortgages that can take up to 30 days. This quick access to capital can be crucial when trying to meet a tight close of escrow date.

5. Sell Existing Home for Top Dollar

Without the pressure to sell quickly, the homeowner can take the time to properly prepare and market the existing home to maximize the sale price. This may include making repairs or upgrades to the home, waiting for a better time of year to sell, or holding out longer for a better offer. Making repairs or upgrades to a home is much easier and less stressful once the homeowner has moved out of the property.

The flexibility provided by bridge financing means you won’t have to accept a lower offer just to meet the timeline for purchasing your new home.

Owner Occupied Bridge Loan Requirements

To qualify for an owner occupied bridge loan, requirements must be met:

Equity in the Property: Bridge loan lenders will require the homeowner has significant equity in the current home relative to the loan amount needed. Loan amounts of up to 65-70% of the current value of the property are typically available. The equity serves as security for the bridge loan that is secured against the property.

Credit Score: While bridge loans may have more flexible requirements than traditional mortgages, the higher the credit score the better. A credit score of around 650 or higher may be required. If the exit strategy for the bridge loan requires refinancing into a long-term traditional loan, a credit score of 680 or higher may be required.

Property Qualifications: Both the current and new property must meet the lender’s standards. This typically includes being in good condition and having clear title.

Exit Strategy: The borrower will need to demonstrate a reasonable plan for repaying the bridge loan, usually through the sale of the existing home or refinancing into a traditional loan.

Income Verification: While specific debt-to-income ratios are not required, the lenders will want to see sufficient income (or cash reserves) to cover the loan payments and others costs associated with the property while borrower has the bridge loan.

Owner Occupied Bridge Loan Lenders

While there may be some traditional financial institutions that offer bridge loans for owner occupied properties, many bridge loan lenders are specialized private lenders.

Specialized private lenders focus specifically on bridge loans and similar short-term financing solutions. They may offer more flexible terms but potentially at higher rates.

When selecting a bridge loan lender, consider factors such as:

• Interest rates and fees – Fees typically are more important than the interest rate
• Loan terms and flexibility – The expectation is a short loan term of less than 12 months
• Processing times and efficiency – Ensure the lender can fund soon enough based on the close of escrow date
• Requirements for qualification – Equity in the property is usually the key factor
• Customer service and support – Check customer reviews of the bridge lender
• Experience with bridge loan transactions – Ensure the lender has necessary licensing and experience

Working with an experienced lender who understands the unique characteristics of bridge financing can make the process smooth and successful. While owner occupied bridge loans can provide valuable flexibility in your home transition, they require careful consideration of the costs and risks. A well planned out financing strategy and working with a reputable bridge loan lender will setup the homeowner for success.