## What is a Gap Mortgage?
A gap mortgage is a type of loan that helps borrowers bridge the financial gap between the sale of their current home and the purchase of their new home. This type of loan is typically used when the sale of the current home is delayed or when the purchase price of the new home is higher than the sale price of the current home.
### How does a gap mortgage work?
Gap mortgages are typically short-term loans that are secured by the borrower’s new home. The loan amount is typically equal to the difference between the sale price of the current home and the purchase price of the new home. The loan term is typically between six and 12 months, but can be longer in some cases.
The interest rate on a gap mortgage is typically higher than the interest rate on a traditional mortgage. This is because the loan is considered to be a higher risk for the lender.
### Pros and cons of gap mortgages
**Pros:**
* Can help borrowers bridge the financial gap between the sale of their current home and the purchase of their new home
* Can allow borrowers to purchase a new home before their current home sells
* Can help borrowers avoid having to pay two mortgages at the same time
**Cons:**
* The interest rate on a gap mortgage is typically higher than the interest rate on a traditional mortgage
* The loan term is typically shorter than the loan term on a traditional mortgage
* Gap mortgages can be difficult to qualify for
### Who should consider a gap mortgage?
Gap mortgages are a good option for borrowers who:
* Are selling their current home and purchasing a new home at the same time
* Are concerned about the possibility of a delay in the sale of their current home
* Are purchasing a new home that is more expensive than their current home
* Have a good credit score and a stable income
### How to apply for a gap mortgage
To apply for a gap mortgage, you will need to:
1. Contact a lender and provide them with your financial information
2. Submit a loan application
3. Provide the lender with documentation of your income and assets
4. Pay an application fee
The lender will review your application and make a decision on whether or not to approve your loan. If your loan is approved, you will be required to sign a loan agreement and pay closing costs.
### Alternatives to gap mortgages
There are a few alternatives to gap mortgages that borrowers can consider, including:
* **Bridge loan:** A bridge loan is a short-term loan that is used to bridge the financial gap between the sale of one property and the purchase of another. Bridge loans typically have higher interest rates than gap mortgages, but they can be a good option for borrowers who need to close on their new home quickly.
* **Home equity loan:** A home equity loan is a loan that is secured by the borrower’s equity in their home. Home equity loans typically have lower interest rates than gap mortgages, but they can be more difficult to qualify for.
* **Personal loan:** A personal loan is an unsecured loan that can be used for any purpose, including bridging the financial gap between the sale of one home and the purchase of another. Personal loans typically have higher interest rates than gap mortgages, but they can be a good option for borrowers who do not have enough equity in their home to qualify for a home equity loan.
### Conclusion
Gap mortgages can be a helpful financial tool for borrowers who are selling their current home and purchasing a new home at the same time. However, it is important to compare gap mortgages to other financing options to find the best loan for your individual needs.