If you need short-term financing to purchase a new home before selling your current one, you may be wondering whether a swing loan or bridge loan is the better option. Both are designed to help home buyers bridge the gap between selling one house and buying another. However, there are some key differences between these two types of loans that you should understand before deciding which is right for your situation.
In this article, I will compare and contrast swing loans vs bridge loans, looking at how they work, their costs and requirements, and when each one makes the most sense financially. My goal is to provide clear details so you can determine which type of interim home financing best aligns with your needs and budget.
What Is A Swing Loan?
A swing loan, also known as a swingline loan, is a short-term loan used to finance the down payment on a new home before selling your existing property. Swing loans are usually issued for terms of 1-3 months and allow borrowers to make an offer on a new home without having to list their current residence first.
With a swing loan, the lender provides a portion of the down payment on the new property, which is repaid after the sale of the old home closes These loans carry higher interest rates and fees compared to traditional mortgages and are also known as bridge loans or interim financing loans.
Some key features of swing loans
- Short terms of 1-3 months typically
- Used to cover a down payment on new home
- Repaid after sale of old home finalizes
- Higher interest rates and fees than conventional mortgages
What Is A Bridge Loan?
A bridge loan, also called a swing loan, is a short-term financing option meant to bridge the gap between selling one house and buying another. Bridge loans allow home buyers to secure a new property before listing or selling their existing home.
Like swing loans, bridge loans are issued for short periods of time, usually around 6 months to 1 year. The loans are secured using the borrower’s current home as collateral until the sale goes through. Bridge loans carry higher interest rates but provide necessary funds during the transition between properties.
Here are some defining features of bridge loans:
- Short terms of 6-12 months
- Secured using current home as collateral
- Allow purchase of new home before old one sells
- Higher interest rates than conventional mortgages
Comparing Swing Loans Vs. Bridge Loans
Now that we’ve defined both financing options, let’s take a closer look at how swing loans and bridge loans stack up against each other:
Loan Term Length
- Swing loans – Typically 1-3 months
- Bridge loans – Typically 6-12 months
Bridge loans tend to have longer terms than swing loans, providing borrowers more time to sell their old house. Swing loans are extremely short term at just 1-3 months.
Use Of Funds
- Swing loans – Down payment on new property
- Bridge loans – Down payment + pay off old mortgage
Swing loans are solely used to cover the down payment on a new home before the old one sells. Bridge loans can also pay off the existing mortgage as part of the new loan.
Interest Rates and Fees
- Swing loans – Higher rates and fees than traditional mortgages
- Bridge loans – Also higher rates/fees than conventional mortgages
Both types of loans charge borrowers higher interest rates and fees compared to standard mortgages, making them more expensive financing options.
Collateral and Payoff
- Swing loans – No collateral, repaid after sale of old home
- Bridge loans – Secured by current home, repaid by sale or new mortgage
Swing loans are unsecured while bridge loans use the current home as collateral. Swing loans must be repaid when the old home sells. Bridge loans can be repaid with sale proceeds or refinanced into the new mortgage.
Credit Score Requirements
- Swing loans – Typically 680+ credit score
- Bridge loans – Often require 740+ credit score
Bridge loans usually have stricter credit requirements. Swing loans may only require a 680 FICO score, whereas bridge loans often mandate scores of 740 or higher.
Loan-to-Value Ratio
- Swing loans – Up to 80% LTV allowed
- Bridge loans – Maximum of 80% LTV
The maximum loan-to-value ratio allowed for both types of loans is typically 80%. This means borrowers need 20% equity minimum in current home.
When Does A Swing Loan Make Sense?
Given their ultra-short terms of just 1-3 months, swing loans are best suited for borrowers who expect their home sale to close very quickly. They provide temporary financing for your down payment and allow you to move fast on a new purchase when needed.
Swing loans may make the most sense in these situations:
- Current home is already under contract
- Strong certainty old home will sell fast
- Need short window to cover down payment
- Want to buy in hot seller’s market with speed
The quick turnaround time means swing loans work if you require financing for just a brief period. If your home sale is at risk of delay or falling through, the longer terms of a bridge loan may be preferable.
When Is A Bridge Loan A Better Fit?
Bridge loans allow more time (6-12 months) to sell the old house, providing flexibility if the sale process drags on. The funds can be used for the down payment or to pay off your existing mortgage in full.
Here are cases where a bridge loan may suit your needs better than a swing loan:
- Lower certainty old home will sell fast
- More time needed to find buyer for current house
- Want to pay off old mortgage immediately
- Require 6-12 months to close new purchase
Bridge loans make sense when there is greater uncertainty about the timing of your home sale. Their longer terms provide a cushion in case the transaction gets delayed or hits snags.
Weighing The Pros And Cons
Before deciding between a swing loan or bridge loan, consider these general pros and cons of each:
Swing Loan Pros
- Super short terms if old home selling fast
- Close quickly on new purchase
- Lower costs than bridge loan
Swing Loan Cons
- Very tight repayment time frame
- Higher rates than conventional loan
- Risk if sale of old home falls through
Bridge Loan Pros
- More time to sell old house
- Pay off old mortgage immediately
-Purchase before listing current home
Bridge Loan Cons
- Higher rates and fees than swing loan
- Current home used as collateral
- Pay two mortgages if old home doesn’t sell
Tips for Getting The Best Rate
Because both swing and bridge loans come with higher financing costs, here are some tips to help get the lowest rates possible:
- Shop around with multiple lenders
- Look for lenders offering swing/bridge loan specials
- Talk to your current mortgage lender
- Check if you qualify for preferred rate discounts
- Maintain a credit score over 740
- Lower debt-to-income ratio improves eligibility
Even a small rate reduction can mean big savings over the term of a swing or bridge loan. Spending time to research your options is key to securing affordable interim financing.
Choose The Right Interim Loan For You
Evaluate the unique pros, cons and eligibility requirements of each product. This will ensure you select ideal interim financing that comfortably bridges the timing gap between your home sale and purchase transactions. With the right swing loan or bridge loan in place, you can move forward and secure your next home with confidence.
Why would you need a Swing Loan?
When you already own a home and want to buy a new one, you likely plan on using the equity you have built up in your current home as all or part of the down payment. However, if you close on the new house before you have sold your current one, you need a placeholder for the money you expect to get from the sale.
This is where the Swing Loan comes in. You may be eligible to borrow funds against your current home that can be used as all or part of the down payment on the new home. As soon as you sell your home, the profits from the sale will be used to repay the Swing Loan.
Our Swing Loan product allows you to make interest-only payments. This means you do not have to pay on the principal of the loan because the principal will be paid off when your home sells.
Swing or Bridge Loans are meant as short-term financing solutions. Most are designed to last no more than six months. Some are paid off in as little as a few weeks. Because the repayment of these loans depends on whether or not you sell your home, interest rates for Swing Loans may be higher than a regular home loan. There are many variables involved, so speak with a Traditions Bank Relationship Manager about the options available for your situation.
Just about any homeowner can apply for a Swing Loan. To qualify, you need to have at least some equity in your current home. Your current home will be held as collateral until the Swing Loan is satisfied.
There are many advantages to applying for a Swing Loan with Traditions Mortgage. They include:
- Fast approval: You can generally complete the loan approval process in less time than other loans. This allows you to act more quickly in making an offer on the new home you want.
- Avoiding an early payoff penalty: You can pay off your Swing Loan at any time without facing an early payment penalty, which is helpful since you may only need the loan for a few weeks or even days.
- Interest-only payments: By paying only the interest on the loan, you have more funds available so you don’t have to utilize your savings to bridge the gap between selling and purchasing.
A Swing Loan lets you move forward in the home buying process even as your current home stays on the market. You can feel confident you have the means to finance your new house.
Are you interested in applying for a Swing Loan to help you with your new home purchase? Get in touch with one of our Relationship Managers today. We can discuss your loan choices and find the program that works best for you. Give us a call or stop into one of our convenient locations to get started.
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How does a Swing Loan Work?
If you need temporary financing to help you purchase a new home while you are waiting for your current home to sell, Traditions Bank has a Swing Loan (also known as a Bridge Loan) product that may be right for you. This loan offers competitive rates and flexible terms to fit your situation. It also offers interest-only payments.
Swing Loans are also referred to as Bridge Loans because they provide the short-term financing you need to help you bridge the gap between paying off your current mortgage and putting a down payment on a new home. While this is not the only way to get the funding you need, it is one of the most common ways for homeowners to secure short-term financing when moving to a new primary residence.
What types of Swing Loans are available? How do you qualify for a Swing Loan? Is a Swing Loan the right option for you? Read on to learn about Swing Loans offered by Traditions Bank.
What is a bridge loan – How do bridge loans work?
Is a home equity loan better than a bridge loan?
A home equity loan is often more affordable than a bridge loan, but this option still requires you to carry two mortgages if you buy a new home and don’t sell quickly. You might consider this option if you’re planning on keeping the residence you’re leaving for an extended period.
Is a bridge loan a good idea?
In summary, a bridge loan can be beneficial if you need immediate funds for a new home purchase, but it’s crucial to consider the costs and risks associated with it.Consult with a financial advisor or
What are swing/bridge loans?
Swing/bridge loans are short-term loans that bridge the funding gap in your new home purchase. Qualified homeowners can access the equity in their existing home, before it’s sold, and use those funds to close on the new house. Swing/bridge loans can relieve the financial pressure often experienced as you transition from one home to the next.
What is a bridge loan?
A bridge loan, sometimes called a swing loan, makes it possible to finance a new house before selling your current home. Bridge loans may give you an edge in today’s tight housing market — if you can afford them. 20% equity in your current home required. Six- to 12-month terms. High interest rates and fees. Best in areas where homes sell quickly.