| Bridge loans are an effective tool for those looking to | | | | Because bridge loans effectively have the borrower |
| sell an existing home and buy a new home. A bridge | | | | carrying two mortgages at the same time, the income |
| loan enables you to make an offer on a new home | | | | requirements are much more stringent than for a |
| without having the offer contingent on the sale of your | | | | straightforward mortgage loan. You'll need to have |
| existing home. The fewer contingencies in an offer, the | | | | very good income with little debt, excellent credit, and |
| more likely you are to get a good deal. | | | | the amount of money available to you will depend |
| With a bridge loan, you're able to carry the mortgage | | | | upon a number of factors. |
| on your existing home and take out a mortgage on a | | | | Some lenders will allow you to borrow a certain |
| new home at the same time. | | | | percentage of the market value of the home you're |
| Also known as "swing loans" or "gap loans," bridge | | | | selling, less the outstanding balance. So, if your existing |
| loans are short term loans and, as such, tend to have | | | | home is worth $250,000 and the balance you owe on |
| higher interest rates than conventional home loans. | | | | the mortgage is $100,000, you'll be able to borrow |
| There's an inherent risk in bridge loans due to the fact | | | | some percentage of the $150,000 difference. |
| that your existing home may not sell in the timeframe | | | | Other lenders will only allow you to borrow a certain |
| specified in the bridge loan contract. Given the length | | | | percentage of the equity you have in the existing |
| of time that homes are sitting on the market these | | | | mortgage. So, if the mortgage you took out on your |
| days, you should try to get a bridge loan for a period | | | | existing home was $150,000 several years ago, and |
| of up to a year, unless you're certain your existing | | | | you still owe $100,000, you'll be able to borrow some |
| home will sell faster than that. Many lenders will only | | | | percentage of the $50,000 equity. The fact that the |
| issue bridge loans for six months, so you may have to | | | | home is now worth $250,000 doesn't matter. |
| renew the bridge loan if your existing home doesn't sell | | | | You stand a better chance of getting a bridge loan |
| in that six month period. | | | | approved if you use the same mortgage lender that |
| There are two types of bridge loans. For those with | | | | you use for your new home mortgage. |
| more limited available funds, one type of bridge loan | | | | In addition to the stringent requirements you need to |
| allows you to borrow enough money to pay off your | | | | meet to get a bridge loan, the reality of carrying three |
| existing mortgage, plus enough to make a down | | | | loans (your original mortgage, your new mortgage, and |
| payment on your new home. | | | | the bridge loan) can be unsettling. You're taking a risk |
| With this type of bridge loan, you only make your | | | | by assuming that your existing home will sell, and will |
| regular monthly mortgage payments for your new | | | | sell for somewhere near the price you had in mind. |
| home. Once your old home is sold, you pay back all of | | | | There are alternatives to bridge loans. For example, |
| the accrued interest and the outstanding balance of | | | | you can borrow money for the down payment on |
| mortgage payments from the old home that were | | | | your new home from your 401K or any other secured |
| covered by the bridge loan. | | | | assets you own. Often you can take out a home |
| The other common type of bridge loan is designed for | | | | equity loan against your existing home and use the |
| people with more available income. The bridge loan | | | | proceeds as the down payment for the new home. |
| gives you the money for the down payment on the | | | | In any of these cases, though, you'll still need to qualify |
| newer home. You continue to make the mortgage | | | | to carry two mortgages. If your financial situation won't |
| payments on your old home, plus you make mortgage | | | | permit that, you'll want to make your existing home as |
| payments on your new home. When your old home is | | | | appealing as possible so that it sells quickly. You may |
| sold, the accrued interest and principle on the bridge | | | | want to even consider selling your existing home first, |
| loan for the down payment is repaid. | | | | and then renting until you find the new home you want. |