Can I Use Equity as a Down Payment? Yes! Here’s How.

Typically, in order to use the equity in your home as the down payment on your next one, you need to turn that equity into cash by lining up the sale of your current one with the purchase of the next one. While people do it all the time, it creates a tricky situation of making home offers that are contingent upon the sale of your home (which sellers aren’t always a fan of and may not accept), feeling a time crunch on accepting an offer on your home, and scheduling closing dates and times that won’t leave you stranded. 

If you’re stressed out just reading this, don’t worry, there is an alternative solution. Here’s how you can use equity as a down payment without turning it into cash first. 

Meet: Bridge Loans 

The solution we are talking about in this article is Bridge Loans. What are they? A Bridge Loan is a short-term mortgage (typically 6-12 months) that allows you to borrow the equity in your home to use as the down payment on the next purchase. Within those six to twelve months, you’ll make interest-only payments on the Bridge Loan, but once you sell your home, turning the equity into cash, you pay off the Bridge Loan. It’s a buy now, sell later program.

For more details on the benefits and an illustration of how Bridge Loans work, check out this article.

What Lenders Will Allow Me to Use Equity as a Down Payment? 

Bridge Loans are a specialty loan type and are not offered by every bank or broker. And many times, when you do find a lender offering a Bridge Loan, they are for extremely well-qualified buyers (i.e., excellent credit score, very low debt, etc.). So, where do you turn? 

As a mortgage bank, United Home Loans is able to offer a wide range of specialty solutions, including Bridge Loans. Qualifying to use equity as a down payment at United Home Loans is now more flexible than meeting traditional requirements. We have lowered the credit score requirement, increased the max loan amount, opened up the program to more states, and added flexibility to the debt-to-income ratio requirement for Bridge Loans! 

Do I Qualify for a Bridge Loan?  

Here are some basic requirements for a Bridge Loan from United Home Loans. 

• 680 minimum credit score 
• $125,000 maximum loan amount
• 6 months’ reserve of monthly payments on the new home 
• Available in Florida, Illinois, Indiana, Michigan, Tennessee, and Wisconsin 
• 45% maximum debt-to-income ratio with opportunity for exceptions 

If you’re thinking about buying and selling, and the requirements seem to be a good fit, it could be time to talk to a mortgage banker! Keep in mind, qualifying for any loan is done on a case-by-case basis, requiring a mortgage banker to look at a combination of factors that are specific to each buyer’s scenario. If you have questions, we’re here to talk!