Your San Diego family is growing and you need more space, or perhaps you’ve just gotten that big promotion, and you’re anxious to move out of your small ‘starter’ home. Moving up from a 1st or 2nd home into newer and bigger house in San Diego can be a challenging task in today’s markets. Home-buyers often must commit to buying their new San Diego dream house before the one they currently live in sells. The financing can get complicated.
In this knowledge article from San Diego Personal Loans Journal, we will cover the most common methods used to obtain a home owner bridge loan in San Diego, the risks involved, and an alternative method for short term financing that you may have overlooked but which could be the fastest and most viable option.
What is a San Diego Home Owner Bridge Loan?
A San Diego home owner “bridge loan” is a short-term loan taken out by a home owner against their current property to finance the purchase of a new home in San Diego County. Bridge loans are generally used when a borrower is moving into a bigger, more expensive San Diego house, and their current house hasn’t yet sold.
A San Diego bridge loan actually ‘bridges the gap’ between the time when the new house is purchased and the old one sells. When markets are booming and San Diego houses sell quickly, it’s not usually necessary to take out a bridge loan. But in today’s sluggish housing market more and more San Diego home buyers find themselves in need of this short term financing option.
“Wrap” or “Gap” Financing for San Diego Home Owners
One type of San Diego bridge loan, sometimes called “wrap” or “gap” financing, is a short-term loan that wraps the payments for your current home and your next San Diego home into one loan. You borrow enough money to pay off your existing San Diego mortgage and provide for a down payment on your new home, though technically, some borrowers will actually own two houses at once. To qualify for this type of bridge loan, you must have excellent credit and significant home equity in San Diego, (the difference between what your current home’s market value is and how much you still owe on it).
Typically, you can only finance up to 80 percent of the combined value of both San Diego homes, resulting in the need for significant equity, a big down payment, or a combination of the two. If you are selling a house for $150,000 in San Diego and buying one for $350,000, you can borrow only $400,000, leaving $100,00 to be made up with equity and down payment. The lender also may have to qualify you to own two homes, and these days many San Diego buyers do meet the borrowing requirements.
With this type of San Diego bridge loan, you generally will not make any monthly payments on the loan itself. Instead, you will make mortgage payments on your new home. When your old San Diego home sells, you will use the proceeds to pay off the bridge loan, including the associated interest and remaining balance. You then need to apply for a new San Diego mortgage, meaning that you would pay closing costs twice.
Getting a San Diego Home Equity Line of Credit
Another type of San Diego bridge loan for home owners is similar to a second mortgage. If you have enough equity in your home, (at least 20 percent), you may qualify for a Home Equity Line of Credit (HELOC) that you can use to make the down payment and initial payments on your new home’s mortgage. When you sell your old home, you pay off the line of credit and your old San Diego mortgage.
The limit of a HELOC is set by the San Diego lender, and you can withdraw money as you need it. As you pay off the principal, your credit revolves and you can use it again. For instance, if you have a $10,000 line of credit and borrow $5,000, but then pay back $3,000, you still have $8,000 available. This flexibility can be quite useful if your old San Diego home doesn’t sell for many months.
The Cost & Risk of Homeowner Bridge Loans in San Diego
San Diego bridge loans from today’s banking institutions can be risky, whichever type you decide on. As the borrower, you will be taking on a new loan with a higher interest rate with no guarantee that your old San Diego property will sell within the allotted time frame. San Diego bridge loans have a set time limit, with due-and-payable dates that are set by the lender. This means that if your old home is not sold by that time, you will need to ask for an extension or completely refinance your debts in San Diego, CA.
Bridge loans issued by San Diego Banks often come with hidden fees and penalties that the home owner overlooks or doesn’t consider fully. Keep in mind that in addition to higher interest rates than a typical 30-year, fixed-rate San Diego mortgage, banks also attach fees that are generally higher than more conventional loans. For example, many San Diego lenders charge in excess of 1 percent of the outstanding loan balance as a fee. There can also be significant penalties for prepayments–that is, if you pay off your bridge loan faster than agreed.
Some San Diego lenders will not consider extending a HELOC (Home Equity Line of Credit) if they know the house will be going on the market, so you’ll need to secure the loan before you list your home for sale. In addition, you will have to qualify for the payments on the home equity line of credit, your current home loan, and your next San Diego mortgage. Credit lines also usually have variable interest rates that fluctuate over the life of the loan as well. Payments will vary depending on both the interest rate and how much credit you have used.
San Diego Home Owner Bridge Loan Alternatives
Due to the complexity, hidden fees, and strict qualification requirements involved in traditional San Diego bridge loans, many people are seeking alternative short-term financing options–such as financing down payments with their 401k, stocks, or other assets. However, tapping into your San Diego retirement fund or emergency savings is usually not a good idea.
For many San Diego home owners, the easiest and quickest financing method is to secure a short-term collateral loan with portable luxury assets, such as old diamond jewelry, luxury timepieces, or gold coins. Depending on the value of your items and the amount of financing needed, a collateral loan often can help ‘bridge the gap’ in financing your new San Diego home.
Diamond Estate Jewelry Buyers is one prominent firm that has helped many San Diego home owners secure confidential short-term collateral loans, regardless of their credit history and without putting their current credit rating at risk (as no credit checks or reports are ever made). Their collateral loan specialists are available to evaluate your fine jewelry or timepiece and issue you an immediate San Diego bridge loan today. For more information, visit them online at: DiamondEstate.com.
Do you need help obtaining a business loan for a San Diego small business with poor credit? Check out our article: How to Get a San Diego Small Business Loan with Bad Credit.