Contingent Offers vs. Bridge Loans: What Move-Up Buyers Should Know in Greater Sacramento

Moving up from a starter home to something larger is a big step. It involves both excitement and challenges, especially when it comes to financing your new home while selling your old one. In Greater Sacramento, from cities like Sacramento and Roseville to places like Elk Grove and Folsom, understanding your options is crucial. Two main options for move-up buyers are contingent offers and bridge loans. This guide helps you decide which might be right for you.

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What is a Contingent Offer?

A contingent offer is when the purchase of a new home depends on the sale of your existing home. This means you will finalize buying the new house only when your current house sells. Contingent offers can help you avoid owning two houses and mortgages at the same time. However, not all sellers accept them, especially in competitive markets.

Pros of Contingent Offers

• Less Financial Risk: You don’t have two mortgages at once.
• Security: Know your house must sell before you buy another.

Cons of Contingent Offers

• Seller Acceptance: Not all sellers accept these offers, especially if they get a non-contingent offer.
• Market Timing: Selling your home first can cause delays in buying, meaning you might end up renting temporarily.

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What is a Bridge Loan?

A bridge loan is a short-term loan that helps you buy a new home before selling your current one. It’s called a "bridge" because it creates a financial bridge between selling and buying. Here’s how it works:

• Loan Term: Typically around one year.
• Payments: You’ll make interest payments monthly.
• Balloon Payment: The full loan amount is due at the end of the term.

For instance, if you need a bridge loan of $250,000, your monthly payments might be $1,834.41 with interest and principal paid. At the end, you’d make a balloon payment of $249,746.00.

Pros of Bridge Loans

• Flexibility: You can buy a new home anytime.
• No Sale Pressure: Sell your home when you get the best offer, not urgently.

Cons of Bridge Loans

• Costly: Higher interest and fees can add up.
• Financial Strain: You have two loans (bridge and mortgage) to handle until your home sells.

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What Should Move-Up Buyers Consider?

When deciding between a contingent offer and a bridge loan, it’s important to think about your financial situation, the real estate market in Greater Sacramento, and your personal needs.

Current Market Conditions

In a competitive market, homes in hot areas like Sacramento and Roseville can sell fast. Here’s why that matters:

• Contingent Offers: They might be less appealing to sellers eager for a quick sale.
• Bridge Loans: They can make you a stronger buyer since you’re not contingent on selling your home.

Financial Readiness

Evaluate your finances carefully:

• Mortgage Pre-Approval: Know what you can afford before making any moves.
• Financial Cushion: Make sure you have savings or a plan for handling potential double-housing costs.

Rate Locks

Interest rates can fluctuate. Locking in your rate can protect you from increases while you deal with the buying and selling process. Always check if your rate is locked and understand how long that lock lasts.

Documentation

Gather income, asset, and employment documents early. It speeds up the application process, especially if a bridge loan becomes necessary.

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Pitfalls to Avoid

Loan Estimate Expiry

Loan Estimates are crucial for understanding costs, but they can expire. If you don’t decide within 10 business days, you might start over. Be prompt in decision-making to avoid this.

Interest Rate Lock Expiry

Closing before your rate lock expires is vital to avoid extra fees. If delays happen, talk to your lender about options to extend your rate lock.

Application and Appraisal Fees

Understand the fees related to any loan application. Each lender may have different terms on whether these fees are refundable.

Communication

Always keep the conversation open with lenders. Ensure you and your loan officer are on the same page with your loan choice and terms.

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Conclusion

Deciding between a contingent offer and a bridge loan when upsizing in Greater Sacramento involves weighing costs, market dynamics, and personal comfort. Contingent offers might suit those wary of double mortgages, while bridge loans offer flexibility in a fast-moving market.

Being informed about financing, interest rates, and market conditions gives you confidence, whether you’re eyeing Sacramento, Elk Grove, or anywhere in between. Engage a knowledgeable mortgage advisor to guide you through the process, ensuring each step aligns with your homeownership goals. Understanding your financial picture and planning your strategy will make your move smoother and more successful.