Everything You Need to Know About Bridge Loans in Florida

Bridge loans in Florida can be an excellent financing solution for real estate investors and homeowners looking to purchase a new property before selling their current home. As the name suggests bridge loans act as a “bridge” to fill the gap between the sale of one property and the purchase of another.

In this comprehensive guide, we’ll cover everything you need to know about bridge loans in the Sunshine State – from what they are who they benefit and how the process works, to tips for getting approved and finding the best lender.

What is a Bridge Loan?

A bridge loan, also sometimes called a swing loan or gap financing, is a short-term loan that provides temporary financing to purchase a new home before selling an existing property.

The loan allows the borrower to “bridge the gap” between the two transactions by providing the funds needed for a down payment on the new home closing costs or other expenses.

Bridge loans are typically repaid in 6 to 12 months once the original property is sold. The proceeds from the sale are used to pay back the bridge loan in full.

These loans are often used by:

• Homeowners moving to a new house who need to close on the purchase before their current home sells
• Real estate investors flipping properties or acquiring a new investment property
• Builders constructing a new home on spec before selling their current residence

Bridge loans provide an alternative source of financing when traditional lenders won’t approve two mortgages at the same time. They allow the borrower to compete on putting offers in on new properties without waiting for their home to sell first.

Bridge Loan Benefits

There are several key advantages to using a bridge loan:

• Speed – Bridge loans can close in as little as 1-2 weeks, much faster than regular mortgages which can take 30-45 days on average. This allows borrowers to jump on opportunities quickly.

• Buying power – Bridge loans provide the capital needed to put down payments on new properties, empowering borrowers to make competitive offers.

• Flexibility – Borrowers can purchase a new home before selling their existing one, avoiding contingencies that might lead sellers to reject their offers.

• Market timing – Bridge loans allow homeowners to purchase a new house in their desired area and at the right time, even if their current home isn’t sold yet.

How Do Bridge Loans Work?

The basic process of obtaining a bridge loan in Florida involves the following steps:

1. Find a lender – Many private lenders and hard money lenders offer bridge loan programs in Florida. Shop around for the best rates and terms.

2. Apply and get approved – The lender will evaluate factors like your credit score, debt-to-income ratio, loan-to-value ratio, and the equity in your current home. Approval can take anywhere from 24 hours to one week.

3. Provide collateral – Your current home will be used as collateral for the bridge loan, meaning if you default the lender can take possession and force a sale.

4. Close on your new home – Once approved, you can move forward and close on the new property using the bridge loan for your down payment and closing costs.

5. Repay the loan – You’ll have 6 to 12 months to sell your initial home and repay the bridge loan in full. If you can’t sell in time, some lenders may provide extensions.

Bridge Loan Costs and Fees

Bridge loans typically come with higher interest rates and fees compared to conventional mortgages. Here are some common costs:

• Interest rates – Usually between 8% to 13% APR, depending on your financial profile.

• Origination fee – Upfront fee of 1% to 5% of the total loan amount.

• Other closing costs – Appraisal fee, document preparation fee, underwriting fee, etc. Closing costs usually add up to 2% to 5% of the loan total.

• Late fees – Charged if you miss or are late on a payment, usually 5% of the monthly payment amount.

Always make sure to account for all fees and costs when budgeting for a bridge loan. The higher expenses allow lenders to take on the increased risk of these short-term loans.

Bridge Loan Requirements

Bridge loan eligibility criteria can vary significantly between private lenders. Here are some typical requirements:

• Equity – You’ll need at least 20% to 30% equity in your current home to qualify for a bridge loan.

• Credit score – Minimum credit scores range from 600 to 700. Many lenders are willing to work with lower scores.

• Debt-to-income ratio – Your total monthly debt payments, including the bridge loan, should not exceed 40% to 50% of your gross monthly income.

• Loan-to-Value (LTV) ratio – Loan amounts up to 65% of your current home’s value may be approved.

• Property appraisal – An appraisal will be required to validate the home value and available equity.

• Employment – Expect to provide proof of current income sources. Self-employed borrowers may need 2+ years of tax returns.

Finding the Best Bridge Lender in Florida

With so many bridge loan options, it’s important to find the right lender for your specific situation. Here are some tips:

• Compare interest rates and fees – Even a 1% rate difference can equal thousands in extra costs over the loan term.

• Ask about extensions – Some lenders provide flexibility on extensions if you need more time to sell.

• Look for quick funding – The fastest lenders can fund loans in as little as 2-3 days after approval.

• Inquire about contingent approval – See if you can get pre-approved for a bridge loan amount before making offers.

• Check reputation – Read online reviews and check the Better Business Bureau when evaluating lender options.

• Consider a mortgage broker – An experienced broker can shop many lenders and help you find the best bridge loan.

When to Get a Bridge Loan in Florida

The ideal timing for getting a bridge loan is when you have found a new property you want to purchase, but have not yet sold your existing home.

Bridge loans allow flexibility to make competitive offers on your desired property without restricting contingencies.

Some specific situations where a bridge loan may make sense include:

• Relocating to a new area and needing to secure a home before selling your current residence

• Urgently needing to upgrade to a larger home to accommodate a growing family

• Finding a great investment property deal you want to jump on quickly

• Being in a high-demand housing market where contingencies can cause deals to fall through

• Wanting to start renovations or construction on vacant land before selling your home

Alternatives to Bridge Loans

If bridge loan rates or fees don’t fit your budget, here are a couple alternatives worth considering:

• Home equity loan – Could provide cheaper financing by tapping existing home equity. But it takes much longer to get approved.

• HELOC – Functions like a credit card using your home equity as collateral. More flexibility but closing can still take 30+ days.

• Contingent sales offer – Make your new home purchase contingent on selling your current property. High risk the seller rejects your offer.

• Dual mortgage payments – Finance both homes temporarily if you qualify. Expensive and still won’t help you buy quicker.

For most home buyers and real estate investors, a bridge loan is the fastest and most practical way to purchase before selling. But be sure to explore all your options before deciding.

Wrapping Up

Bridge loans enable Florida homeowners and investors to capitalize on opportunities and move quickly in competitive housing markets.

By understanding bridge loans and choosing the right lender, you can minimize delays, avoid contingencies, and gain an edge when making offers.

Just be sure to budget properly for the higher financing costs and have an exit strategy to repay on time. Used strategically, a bridge loan can be a huge boost in purchasing power.