One of the fastest-growing real estate brokerages in the U.S. is announcing a new service designed to make it easier for current homeowners to buy another home.
Compass is offering to help connect its clients with vetted lenders who can provide bridge loans more easily, and thereby give buyers the financial flexibility to make a down payment on another home without having sold their existing home.
In today's competitive real estate market, regular buyers are up against cash-heavy investors for a dwindling supply of available homes for sale. Timing is critical, but some buyers need the equity from their current homes in order to afford the down payment on a new home. Bridge loans are often pricey and difficult to get, but Compass representatives say their lenders, which include Better.com and Freedom Mortgage, are providing competitive rates, and a streamlined process.
To entice borrowers even more, Compass is offering to front the initial loan payments, so that there are no out-of-pocket costs for the borrower for up to six months. Once a homeowner is approved for a bridge loan from any lender, and is working with a Compass agent to sell the current property, the homeowner can apply, through Compass, to have the bridge loan costs funded. That includes the monthly payment, eligible closing costs and points, but does not include taxes. The upfront funding is handled by another independent lender, Notable, but Compass is actually providing the capital.
"We know by talking to our 13,000 Compass agents that there has been consumer demand for a product like this for some time," said Robert Reffkin, founder and CEO of Compass. "We see initiatives like Compass Bridge Loan Services as an investment in the overall real estate ecosystem. Countless homeowners would move tomorrow if only they had the liquidity to do so. By temporarily providing that liquidity, we're unlocking an entirely new group of home buyers."
Once the homeowner's current home sells, he or she must pay back the bridge loan in full. If the current home doesn't sell within six months, the owner must start making the monthly payments, and after 12 months pay back the fronted funds in full. There is clearly a risk here to the lenders and to Compass, as the borrower could default if their first house doesn't sell or if there are other unexpected financial hardships.
While Compass representatives would not say what the price ceiling is for a bridge loan in this program, they did say that they fully expect to offer this service on higher-end homes, specifically above the $500,000 range in all of Compass' markets.
Matthew Weaver, vice president of sales at Cross Country Mortgage, said he had never heard of a program like this but added he found it creative, especially given how difficult it is to get a bridge loan in general.
"Bridge loans are extremely rare and hard to find in our industry. The reason is due to profitability. These loans are originated with the expectation of being paid off early, typically eight to 12 months or upon the sale of the subject property," Weaver said. "The bridge product is usually offered by a smaller, local bank in an effort to secure the client's global banking relationship."
Bridge loans usually work like home equity lines of credit. Those rates follow the prime lending rates, along with some margin added on top.