How to unlock home net worth before selling

If you sell a home in Colorado but also want to buy a new home, the timing of both deals cannot be perfectly planned. If you rely on equity in your current home to make a down payment on a new home, your only option is to sell, move out and find the third location to live when you are new. However, before you quit a few months ago, you can consider bridge loans to simplify the process and relieve stress.

Disclaimer: As a friendly reminder, this article is intended for educational purposes, not financial advice. If you need help with using a bridge loan in Colorado, Homelight will encourage you to contact your own consultant.

What is a simple bridge loan?

In real estate, bridge loans are designed to be a convenient and fast way to buy a new home without waiting for your old home to be sold. This short-term financing (also known as a swing or bridge loan) helps homeowners during transitions between properties.

Bridge loans are often more expensive than traditional mortgages because lenders involve greater risks. Bridge lenders will lend buyers the equity they built in the existing home so they can buy a new home.

How does Bridge Loan work in Colorado?

A common real estate plan for Colorado buyers to apply for a bridge loan is that they need to buy a new property before the old home is sold. In this case, they will use the interests of the previous home to pay for the down payment and ending fees of the new purchase.

In many cases, the lender offering a new mortgage will also process your bridge loan. They usually require you to list your existing homes on the market and will offer a bridge loan of up to six months to one year.

Depending on your unique situation, the lender of a new home may need to calculate your debt-income ratio (DTI). The DTI equation will include payments for your current mortgage, new payments on the home you are going to purchase, and payments only on the bridge loan (if applicable).

However, your lender may only include your new mortgage payment only if your previous home is under a contract and the new buyer is approved for the final loan for purchase. The lender does this to ensure you are able to make payments on both properties without your home being sold immediately.

What are the benefits of bridge loans in Colorado?

Borrowing a bridge loan can benefit from positioning you as a more flexible home buyer.