New York State Real Estate Salesperson Licensing Exam

What type of financing is typically used to purchase a new property while the old property has not yet been sold?

1. Conventional loan

2. Swing loan

3. Government-backed loan

4. Second mortgage

The correct answer is: Swing loan

The financing option typically used to purchase a new property before selling the old one is a swing loan, also known as a bridge loan. This type of short-term financing enables homeowners to bridge the financial gap between purchasing a new home and selling their existing one. Swing loans provide quick access to funds and are designed to be temporary, with terms usually spanning a few months to a year. This loan allows the borrower to use the equity in their current home as collateral to finance the down payment or full purchase price of the new property. Once the old property sells, the proceeds can be used to pay off the swing loan, making it a practical choice for those in this transitional situation. Other financing options like conventional loans, government-backed loans, and second mortgages are not specifically tailored for this scenario. Conventional loans and government-backed loans require full approval based on established criteria and typically cannot be obtained just to facilitate transition between homes. Second mortgages, on the other hand, are secured by the equity in the existing property but do not provide the immediate liquidity that a swing loan does for buying a new home before selling the old one.