Bridge Loans May Offer Advantages in Today’s Market
Realtor® Magazine’s editors have frequently described the financial hurdles facing first-time buyers in today’s market. Even so, despite rising home prices and stalled inventories, a third of recent existing home sales have been to the newbies.
A pair of recent RM articles directly (and indirectly) explored several factors that help explain some first-timer successes. The articles dealt with bridge loans and some advantages first-timers may have over repeat buyers.
- “Bridge Loans May Help with Intense Bidding Wars” describes the solution that temporary loans provide to existing homeowners. Current owners commonly face a situation where offers they make on a new home must necessarily be contingent on the successful sale of their own property. That snag can make an otherwise winning bid less attractive than a lower non-contingent offer. The solution for the current homeowner is a bridge loan—a temporary, high-interest loan (typically 8.5% to 10.5%, according to Housingwire) that provides enough cash to fund a contingency-free offer.
The bridge loan article points to one path homeowners can choose to solve a timing dilemma—but it also uncovers a real estate reality that should encourage first-timers. This was dealt with directly a few weeks earlier:
- RM’s “Advantages First-Timers Have Over Repeat Buyers” portrayed the same situation from the opposite point of view. Because “anyone in a position to make an offer without a home-sale contingency is going to be better positioned than those who are waiting to free up cash,” first-timers enter the offering arena with that advantage over existing homeowners—at least until the other side arranges for one of those bridge loans (or sells their property). It is also true that first-timers can have access to a number of down payment assistance programs and grants not available to repeat buyers.