They’re called “swings” or “bridges”—but they don’t belong on a kindergarten playground. They’re the specialized loans that can help Kansas City home buyers get past the kind of cash crunch that can snag an otherwise perfectly achievable purchase.
This is a timing situation that happens quite frequently; it’s in the nature of residential real estate transactions. Suppose you are selling your Kansas City home and the deal is well on its way to being finalized on the agreed schedule. Meanwhile, you have found a new, bigger place that’s perfect for your family (it’s in Kansas City, too—also in a great neighborhood). The problem is that you need to close on the new home before the sale of your current one is finalized. That’s the cash crunch.
The solution can be a bridge loan (AKA, a swing loan). It’s a loan for the short period of time that will allow a home buyer to close on the new home purchase as the other sale closes. Of course, the problem is (this is what the lender has to be thinking) what if the sale of the old house falls through? The answer is to be able to produce a binding contract for that sale—without it, there is little chance the loan will be granted.
Bridge loans aren’t really common with most lenders, since they involve a certain amount of paperwork for a transaction with such a short duration. To that point, the terms of a bridge loan will be more expensive than other kinds—but since the term is brief, the higher interest cost does not amount to much of a deterrent.
Bridge Loan Benefit: Buyer has the ability to make a non-contingent offer
Most bridge loans in the Kansas City market come from local community banks that know and are comfortable with the our real estate market. In fact, since the banking crisis of 2007-2008, there aren’t too many lenders still offering bridge loans.
Tim Kay with Academy Bank in Overland Park, KS had this to say regarding bridge/swing loans…
“We feel like as long as we have a good, solid buyer with good equity in their current home then we’d really like to have these loans on our books. We try to use bridge loans to facilitate doing more real estate transactions.”
Bridges and swings aren’t the only possible way to solve the buying-before-closing dilemma. Sometimes a line of credit (HELOC) on the old house will fill the void, particularly if it has not yet been entered in the Kansas City MLS. If it is already listed, the line may come with some extra charges, including cancellation or closing charges to compensate for the likelihood of its short duration. It is sometimes also the case that the lender financing the purchase of the new home is willing to provide a bridge loan by using the old property as security. Although that is a secured loan, it’s likely to be an expensive one.
When our clients buy or sell, or, as in some of these situations, buy and sell, some of what we do is to help put together creative solutions. Seeing you successfully sell—or move into—your Kansas City home is what our service is all about. It starts when you give us a call!