What is a swing loan when buying a new house before selling?
Moving to a new home while still owning your current one can feel like trying to solve a puzzle. I've seen many homeowners face this exact situation - wanting to buy their dream home but feeling stuck until their current house sells. That's where swing loans come into play, offering a practical solution to this common real estate challenge.
Swing Loan: A temporary loan that provides funds to buy a new home before selling an existing property. This type of financing helps homeowners manage the transition between properties by covering the down payment or purchase price until their current home sells.
Understanding How Swing Loans Work
Think of a swing loan as a financial bridge. You borrow against your current home's equity to make a down payment or purchase on your new home. The process starts by calculating how much equity you have in your current property - this becomes your borrowing power.
These loans typically last 6-12 months, giving you time to sell your current home. Some lenders might offer extensions if needed, though this varies by institution.
Qualifying for a Swing Loan
Getting approved for a swing loan requires meeting several criteria:
Significant equity in your current home (usually 20% or more)
Strong income to handle potential multiple payments
Good credit score (often 680+)
Your properties need to meet certain standards too. Both homes will be evaluated based on:
Current market value
Property condition
Location desirability
Pros and Cons of Swing Loans
Let's look at what makes these loans attractive - and what might make you think twice.
Benefits include:
Making non-contingent offers on new homes
Moving on your own schedule
Standing out in competitive markets
Drawbacks to consider:
Interest rates above traditional mortgages
Managing multiple property payments
Risk if your current home takes longer to sell
Alternatives to Swing Loans
You have options beyond swing loans:
Home Equity Lines of Credit (HELOCs)
Traditional bridge loans
Sale-leaseback arrangements
Making contingent offers
Common Scenarios for Using Swing Loans
Swing loans make particular sense in several situations:
Seller's markets where homes move quickly
Moving for a new job
Finding a rare property you don't want to miss
Needing to move by a specific date
Tips for Success with Swing Loans
Success with a swing loan requires careful planning:
Price your current home correctly from the start
Research both neighborhoods thoroughly
Have a backup plan if your home doesn't sell quickly
Build a strong team of real estate professionals
Frequently Asked Questions
Q: What does a swing loan cost?
A: Interest rates run 2-4% higher than traditional mortgages, plus origination fees.
Q: How long do I have to sell my current home?
A: Most swing loans give you 6-12 months to complete the sale.
Q: What happens if my house doesn't sell?
A: You'll need to either extend the loan (if possible), find alternative financing, or consider renting out the property.
Making the Decision: Is a Swing Loan Right for You?
Consider these factors:
Your financial stability
Local real estate conditions
Your moving timeline
Your comfort with financial risk
Taking the Next Step
Swing loans offer a practical solution for buying before selling, but they require careful consideration. Bellhaven Real Estate offers expert guidance through this process, including market analysis and personalized advice. Contact us for a free consultation to explore whether a swing loan fits your real estate goals.