Bridge Loans in Massachusetts: What Homebuyers Need to Know Roger Odoardi Reviewed by: Jason Caruso Reading Time: 3 minutesNavigating the budgeting, financing, and purchasing of a new home — while possibly selling your current one — can feel overwhelming. Fortunately, there’s a solution that can help alleviate the stress and simplify the entire process. Aptly named, bridge loans are short-term financing options that bridge the gap between your current financial situation and your future investment. In this post, we’ll explore how they work and the specific benefits they offer to Massachusetts home buyers. Depending on your situation, a bridge loan might be the right choice for your next move. What are Bridge Loans? Sometimes referred to as a gap loan or hard money loan, bridge loans are short-term mortgage loans used most frequently for temporary financing while simultaneously buying and selling property. The bridge loan helps you complete a purchase even if your current home hasn’t yet sold. A bridge loan typically features: Six-month or 12-month terms, secured by the borrower’s old home. Can usually only be secured if the buyer agrees to finance their new home’s mortgage with the same lender. Rates that range anywhere from the prime rate to the prime rate plus two percentage points. Eligibility Criteria for Massachusetts Bridge Loans Thankfully, Massachusetts bridge loans don’t have any additional or unique requirements compared to bridge loans in other states. In both the Bay State and most states around the country, buyers usually need to meet the following criteria to obtain a bridge loan: Good to excellent credit score: Most lenders require buyers to have a great credit score, starting in the high-600s to 800+. Low debt-to-income (DTI) ratio: Bridge loan lenders usually want buyers to have a DTI ratio of no more than 40%. Equity: Buyers need to have at least 20% equity in their current home. Do you think a bridge loan might be right for you? Contact us today and we’ll work through your options together >> Pros and Cons of Bridge Loans Pros of Bridge Loans Cons of Bridge Loans Get cash in hand quickly: A bridge loan is useful for time-sensitive or quick transactions. Some lenders can fund in as few as two weeks. Strict qualifications: Usually only available to borrowers with excellent credit and low debt-to-income (DTI) ratios. Payment flexibility: You can defer payments until your current home sells or make interest-only payments. Multiple loan payments at once: If your home hasn’t sold yet, you’ll be making payments on both your mortgage and the bridge loan. Buying flexibility: Provides leverage in the buying market since you aren’t relying on the sale of your current home. Home equity requirement: Many lenders require at least 20% equity in the current home. This can be a barrier to entry for some. No contingency needed: Rather than place a contingency on your new home purchase that your old home must sell for financial reasons, a bridge loan provides the funds to settle on your new home even if the old one hasn’t sold yet. Can come with more risk: Bridge loans rarely come with protections for the loan holder if the sale of the old home falls through. Scenarios Where a Bridge Loan Makes Sense Navigating a Competitive Home Purchase In today’s hyper-competitive real estate market, winning the bid for a new home can be challenging, especially when multiple bidders are involved. Sellers are usually less likely to accept offers that are contingent on the sale of your current home. If you need the equity from your existing property to afford your new purchase, a bridge loan can give you the flexibility you need to make the purchase while you wait for your home to sell. Buying a Fixer-Upper When considering a fixer-upper, traditional loans might not cover the full extent of necessary repairs. And because it’s a new purchase, you likely haven’t accrued enough equity to utilize a home equity line of credit, or HELOC loan. A bridge loan can provide the additional cash you need to tackle repairs, allowing you to enhance your new home without straining your finances. Fix-and-Flip Opportunities If you’re looking to flip a property, a bridge loan could be a smart choice. These loans often have quicker approval processes than traditional financing, empowering you to act fast and stay ahead of other competitive prospective buyers. Once renovations are complete and the property is sold, you can repay the bridge loan, making it a practical option for real estate investors. Is a Bridge Loan Right for You? To determine if a bridge loan is right for you, the first step is to reach out to a mortgage professional who is experienced in the Massachusetts real estate market. They can look at your current home equity, your goals in purchasing a new home and your eligibility requirements. At Blue Water mortgage, we have been helping Massachusetts buyers navigate their many mortgage loan options – including bridge loans – to ultimately land the home they’ve always wanted. Contact our Massachusetts mortgage professionals today to get started. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.
