Bridge Loans & Recasting
We know one of the biggest pain points for homebuyers can be trying to buy and sell at the same time, especially in this crazy seller’s market!
That’s why we try to help our clients buy before they sell whenever it makes sense. Here’s a quick video we made to address the two simple ways you can use your current equity without rushing to sell.
A bridge loan lets you borrow against your current home’s equity by creating a new lien, giving you the funds to buy your new house. The bridge loan gets paid back when you sell your current home.
- Loan Program – Typically, a bridge loan is simply a home equity line of credit (HELOC)*. The term “bridge loan” usually refers to how and why the funds are being used.
- Equity – In order to utilize a bridge loan, you will typically need to have more than 20% equity in your current home.
- Size – The maximum size of your bridge loan will usually be limited to an 80% Combined Loan-to-Value (CLTV) and up to 50% of the value of your property.
- Closing Cost – The cost of a bridge loan can vary depending on the bank providing the financing and whether or not an appraisal is needed. The fees are typically less than a regular refinance but can still be in the $1k – 2k+ range.
- Number of Closings – An additional closing is needed with bridge loan. Most banks can close bridge loans in about 3 weeks.
* Network Funding does not offer bridge loan financing or HELOC’s at this time; instead, we can recommend local banks that do.
Recasting allows you to borrow more on a new house now without tapping your current home’s equity. Simply put less down on the new house; then apply the equity from your current home (after it sells) to the new mortgage, lowering your loan balance and monthly payments.
- Loan Program – Recasting is not a loan program but rather an option that is offered on conventional loan programs and many Jumbo loan programs. Typically, it is not available on government loan programs.
- Equity – As long as you have enough funds to put down the minimum required down payment on a home purchase and you are using an eligible program for recasting, you can recast your loan once your funds are available (see timing section).
- Size – Most loan providers will have restrictions on the minimum amount of funds needed for a principal reduction (usually $5,000) to be eligible for recasting, but there is not usually a limit on the maximum amount.
- Closing Cost – The cost for recasting varies based on your loan servicer, typically the cost is an administrative fee for restructuring the loan payments, this is a one-time fee that can range from $0 – $450.
- Number of Closings – An additional closing is not required, as recasting is not a refinance transaction; it is simply an update on the loan itself. The terms of the loan will not change, only the monthly payment is changing as a result of the balance decrease.
- Timing – Most loan servicers will require you to make your first monthly payment before you are eligible to recast your mortgage.
Bridge Loan Benefits
If you don’t have the minimum funds needed to purchase a new property or are trying to get to a 20% down payment, a bridge loan may be ideal. Other benefits include:
- Renovation – If you need to renovate either property (the one you are selling or the one you are buying), this is an easy way to liquidate cash to pay for the improvements.
- Lot Purchase – If you’re thinking about building a home and need to purchase the lot first, this could be a good option for acquiring it.
If you do have the minimum funds needed to purchase a new property and may already have a 20% down payment, recasting may be ideal. Other benefits include:
- Less Loans – When taking a recasting approach to your next home, it often saves the need to establish a bridge loan, so you only have your new home loan and your old home loan.
- Timeline – If you have the funds to do the minimum down payment on the purchase of a new home, you can go ahead and put that house under contract. With a bridge loan, you need to secure that financing before you close on the new home; with recasting, there is nothing to wait on.
Q: “Can I use both?”
A: Potentially… Depending on how much equity you have in your current home and what is needed for your new one, some borrowers may have the ability (as well as the need) to leverage both a bridge loan and recasting.
Q: “Why buy before I sell?”
A: There are several reasons you may want to buy a new home before selling your existing home:
- Less Stress – Focus on finding the right house without a time crunch.
- Less Logistics – Move when you’re ready, not when you have to.
- Better Negotiating – Make a stronger, non-contingent offer.
Q: “What’s the catch?”
A: There are some things to consider before utilizing Recasting or Bridge Loans:
- Equity – You must have enough equity in your current home for either to make sense.
- Assets – You’ll need some additional assets to qualify for either option.
- Income – You’ll have to qualify to carry multiple mortgages at the same time.