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What’s required to get a bridge loan in Indiana?
To qualify for a bridge loan in Indiana, you typically need to meet the following criteria:
- Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, new mortgage, and the bridge loan.
- Sufficient equity: You need at least 20% equity in your current home, though some lenders may require as much as 50%.
- Good credit history: A credit score above 650 is usually necessary, influencing your interest rate and other loan terms. A higher score is always advantageous.
Your current home listed for sale: Many lenders require that it is on the market, ensuring it’s likely to sell within the bridge loan term.
How much does a bridge loan cost in Indiana?
In Indiana, the cost of a bridge loan generally exceeds that of a standard mortgage. Interest rates on bridge loans are typically 1-3 percentage points higher than those for traditional mortgage loans. Additionally, bridge loans often incur extra transaction fees.
This higher cost is attributed to the increased risk lenders take on with bridge loans. Borrowers need to consider the possibility of their current home not selling within the expected timeframe. If this happens, you should be financially prepared to manage your mortgage and bridge loan payments simultaneously.
The specific rate you’ll receive largely depends on your creditworthiness and the lender you choose.
How to reduce bridge loan costs
Applying for a bridge loan with the same lender as your new mortgage can lead to cost savings. In such cases, you might not need to pay additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to shop around and compare different options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option suits your needs best, considering the total costs, convenience, and suitability for your situation. More alternatives will be discussed in a later section.
Budget for closing costs
You should also budget for closing costs and various legal and administrative fees. These costs typically range from 1.5% to 3% of the loan amount and can include:
Note: A detailed example of how much a $200,000 bridge loan might cost, including possible fees, will be provided in the “Bridge loan cost example” table below.
Bridge loan cost example
Below is an example of how much a $200,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase, but you’re still waiting for your current Indiana house to sell. The asking price for the new home is $250,000. You can only come up with $50,000, but you have at least another $200,000 worth of equity in your current property. You want to access that money to cover the shortfall before selling your new home to another buyer.
| Net loan amount | $200,000 | $200,000 |
| Interest (varies) | 10% (example for 6 months) | $10,000 |
| Origination fee | 1.5% | $3,000 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,700 |
*These closing costs typically range between 1.5%-3%
Who provides bridge loans in Indiana?
In Indiana, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring options with various lenders is a good idea. The most common sources for bridge loans in Indiana include:
- Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans to existing customers.
- Local banks: Some community banks in Indiana offer bridge loans with terms that might be more flexible than larger institutions.
- Credit unions: Member-owned credit unions often provide competitive loan options, including bridge loans.
- Hard-money lenders: These lenders focus on the collateral value of your property rather than your creditworthiness and can be a quicker funding source.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.
Additionally, modern real estate companies are increasingly facilitating the process of obtaining a bridge loan, streamlining the transition between buying and selling a home. More details on how this works will be shared later in this post.
