You purchased a home several years ago with a physician mortgage loan, but now circumstances have changed and you need to move again.
Maybe one of the following scenarios has occurred:
- You finished residency and plan to start a practice in another city.
- You’ve been practicing for some time and are transitioning into a hospital.
- You’ve started a family and are ready for a larger home.
Whatever the reason may be, you still have one problem. You need to sell your current home in order to make the transition.
Can You Finance a New Home Before Selling Your Current Home?
When you find yourself in this type of situation, a bridge mortgage loan can be a viable option to get you where you need to be. First, you need to understand the pros and cons that come with using a bridge loan.
What is a Bridge Mortgage Loan?
A bridge mortgage loan allows you to borrow against your current home in order to finance a new home. Bridge loans are short-term mortgages, that typically last from six months to a year. There are two ways to structure a bridge loan.
- Use the loan to pay off the mortgage on your current home. After you sell it, the proceeds will pay off the bridge loan, and you’ll just be left with the mortgage on your new home.
- Treat the loan as a second mortgage. Use the loan as a downpayment on your new home. You will make two mortgage payments until your original home is sold and paid off.
Important things to Know about Bridge Loans
Bridge loans come with added risk to lenders, thus they will come with higher interest rates and fees. On average, expect the interest on a bridge loan to be two percentage points higher than a standard mortgage. Fees will likely be higher too.
Qualifying for a bridge loan can more difficult as well. Lenders typically will not grant you a bridge loan unless you agree to finance your new home’s mortgage with the same institution. Additionally, lenders will only allow you to borrow up to 80 percent of your current home’s equity.
Alternatives to Bridge Mortgage Loans
If you can’t qualify, or the loan will not meet your needs you still have other options.
- Borrow against your home – If you have enough equity in the home you’re trying to sell, a home equity loan could be a good option.
- Rent for a short period of time – Renting in your new city while you search for a new home and sell your old home can give you some extra time.
- Keep your home and rent it out – If the market is down and you’re having trouble selling, renting your home can make sense. The proceeds will cover your mortgage payment and maintenance needs.
