A Bridge Loan is a great conduit to your next house purchase while your current residence is up for sale. Quite simply, a Bridge Loan is a loan against your current house which will be used to pull cash out of that property for the purchase of your next house.
If you have been shopping for a Bridge Loan you have learned that each lender has their own set of guidelines for the Bridge Loan they provide but generally speaking everyone’s procedures are somewhat similar. I have put together a general list of information so you will feel more comfortable in your search for this product. If you can follow the premise of a Bridge Loan, you will be able to ask your lender specific questions which will lead you to make an intelligent decision as to whether it is for you.
- Most Bridge Loans will allow you to use up to 80% of the value in your “for sale” home.
- You must be moving from one primary residence to another primary residence (owner occupied property).
- The property can be a one to four family property, warrantable condominium or PUD (planned unit development) which will be owner occupied.
- Some lenders do not use the Bridge Loan payment in qualifying ratios so you will qualify for more house in your new purchase.
- A Bridge Loan is an interest only payment due monthly or at the end of a specified amount of time, such as, when you expect to close on your old residence.
- The Bridge Loan should not affect your new purchase. You should be able to get current conventional fixed and adjustable rate products at market pricing.
The advantages outnumber the disadvantages associated with a Bridge Loan. For example, a Bridge Loan is especially helpful for relocating borrowers. And, you can use the equity of the old home to close on your new house without having to liquidate other assets to meet down payment requirements. You are qualified on the new purchase payment only and if constructing will have funds available rather quickly so your builder can break ground and begin your project.
Two very clear disadvantages are, one, you will end up with two closings: one for the Bridge Loan and one for the new purchase. The second disadvantage is every dollar you borrow for the Bridge Loan has to go towards your new purchase for down payment, closing costs, prepaid items and any liens on the existing house to be sold. You are not allowed to take any funds from the Bridge Loan to pay down debt to qualify for a mortgage or to purchase appliances or a vehicle. 100% of the Bridge Loan funds will go towards your new house purchase or the old residence.
Not all lenders offer a Bridge Loan. Many do. It is worth the effort of making phone calls and doing your due diligence – research and such – to track down a lender whose Bridge Loan meets your needs.