Buying Before Selling, or BBS, utilizes "bridge" financing. This is a short-term loan used to bridge a financial gap between two or more residential properties. It's called a "bridge" because it allows you to cross from one property to another primarily utilizing the equity in both properties. This enables the homeowner to purchase the next home before having to sell the old home, move to the new home, and then sell the old home.
Buying Before Selling allows borrowers to compete with cash offers, get their offer accepted without any contingency of selling their old home, and then focus on getting into the new home. Once that process is complete, the old home can be polished up and properly staged, which typically yields higher sale prices. The sale proceeds will pay off the bridge loan with no restriction on how quickly it gets paid off. In the event the proceeds don't pay off the entire amount we can refinance the "leftover" amount to a Conventional long-term rate.
BBS loans are short-term loans by regulation, typically 11-12 months. Because there are no prepayment penalties, the durations can be several months or even a few weeks. BBS loans are not intended as long-term financing solutions and are only meant to "bridge" between the purchase of a new property and the sale of an existing one.
BBS loans require collateral to secure funding, such as the borrower's current home, the home being purchased, or even other properties the borrower may own. This cross-collateralization allows us to maximize the borrower's equity to secure the new home, often for the full purchase price.
BBS loans come with higher interest rates and fees compared to traditional loans because they are short-term in nature but also because of the limited documentation and use of alternative funding sources. The fees are offset by the savings and reduced stress of moving only once, by selling the old home for a higher price because it was polished up and properly staged, and by providing a competitive non-contingent offer on the new home. "Contingent" buyers are often willing to pay a higher price for the new home. With BBS loans, that premium is simply in the form of higher fees rather than a higher price.
The borrower is required to make monthly interest-only payments until the loan is paid off, either through the sale of the old home entirely, if there are enough proceeds, or subsequent refinancing of any remaining balance.
BBS loans have simple but specific eligibility criteria and requirements, primarily creditworthiness and the value of the collateral. Unlike a bank loan, however, income and asset documentation are not required for qualifying. Financial stability, verifiable equity, and a reasonable way to exit the loan are the primary keys to Buying Before Selling.
