Bridge Loans - a housing market secret that helps buyers

Those entering the housing market are going to stumble upon a well-known facet of the chase to buy a home: it's competitive. 

The low inventory of available homes means potential buyers have to get creative if they plan to set themselves apart from the rest of the field. But newcomers to the market are likely not aware of some of the resources available to them.

Real estate agents in this market have seen as many as 20 offers on a single home. That means the seller can be picky and usually the offer is contingent upon the sale of the current home someone is living in. 

But that's where relators say a Bridge Loan can go a long way. 

That's for people who currently own a home and are shopping for a new one. But typically those in the market can't pay two mortgages at the same time, meaning any offer made on a house will have to wait until you sell the current home. 

It's a luxury that most buyers simply don't have.

"We've seen as of late it be used a little more creatively," said Ali Berry with Quest Realty. "To allow you to stay away from having to do a contingent purchase on the sale of your current home."

The loan bridges the gap between one home and the next.

"Most people will use this if they don't have the funds necessary to purchase the new home. They can take equity from their current home with their Bridge Loan and use that for the purchase of their new home," Berry said.

But there's a catch: a Bridge Loan has a high interest rate and a short window to pay it off.

"Typically, those Bridge Loans are shorter in term. It can be 30 days, 60 days, 90 days up to six months. So you want to make sure you can pay if off or you have to renegotiate it," said Carma Peters, with Michigan Legacy Credit Union.

And if someone with the loan doesn't sell their home in time, "you may be in a situation where the bank can take the house from you," Berry said.

"That very very rarely would happen in a market like this because as long as your house is priced accordingly, most homes are going to sell pretty quickly," he added.

That might be the reason a majority of home buyers haven't considered it an option.

"Talk to your lender. There's so many things other that we can do that people aren't aware of and it's just that conversation of, 'we can create that for you and make it a smooth process rather than you having lots of anxiety and stress over a situation you don't need to worry about," said Peters.

Both bankers and real estate agents say the best time to start the process is before one begins the search for a new place to live.