|
|  |
 |
| |
|
|
|
|
|
|
|
A Bridge Loan allows you to use up to 80% of the value of your for-sale
home as the down payment for your new home purchase.
The Bridge Loan is used to refinance any existing mortgages on the for-sale
home, to pay title expenses and loan fees, and to cover six to nine months
interest in advance. Remaining funds after these costs are available
to buy a new home.
Bridge Loans can be used to buy a new home with nearly any mortgage type,
whether this be a fixed rate or adjustable rate mortgage.
Bridge Loans are fantastic for borrowers who need to move prior to selling
their new home because they can access the equity in their existing home
for a downpayment. Interest on a bridge loan is calculated as simple interest
and is paid up front for 6 months relieving you from having to make two
house payments until the home sells.
Bridge Loans are best ...
- When Relocating
and your home has not sold
- When you need equity
from your home to buy the new home
- When you do not
qualify for financing both homes until the previous residence sells
- If you require
a "contingency free" approval so the builder can break ground now
- If you do not
want to liquidate other assets to meet down-payment guidelines
Advantages
of a Bridge Loan
- Bridge loans are
often used for borrowers who wish to use the proceeds from the sale
of their current home to use as a part, or all, of the down payment
on their new home.
- Most new fixed
rate mortgages will not allow you to recast the payment on the new home
mortgage and these borrowers would be stuck with the higher payment
for years to come.
Disadvantages
of a Bridge Loan
- Bridge loans require
2 closings and two sets of fees
- Interest is paid
on the bridge loan for 6 months out of the proceeds (any unused interest
is returned to you when the house sells)
- Bridge Loans carry
interest rates of 1/2%-1% higher than current 30 yr fixed rates
- Since you have
to pay closing costs for both loans plus 6 months of interest out of
the proceeds of a bridge loan, there may not be as much left over as
you hoped.
How
to Determine if a Bridge Loan is for you
- Have you Mortgage
Professional help you compare whether you qualify with both payments,
if you do, consider a second mortgage on the new home that you can pay
off when you sell your home.
- Compare the payment
on a second mortgage for the few months you intend to have two house
payments against the cost of closing two loans.
Example
Here is an example of how to compare which option might be best for you.
This example assumes that you can afford both payments.
Let's assume that you have $20,000 toward your down payment and your Current
house will net you $30,000 in profit you would like to use for a down payment
on your new home.
The new home you want to buy is $250,000 and the total of $50,000 that you
will have will give you a 20% down payment and a mortgage for $200,000.
You have two options
in this case. You can take a bridge loan on your current home and then make
the 20% down payment.
You can take a first and second mortgage where the first mortgage is the
amount that you want to end up with (in this case $200,000) and take a second
mortgage that you will pay off when you sell your house.
With a bridge loan,
you will have the additional costs to refinance your current home which
are normally from $1,000 to $1,500 once you have paid lender fees and title
fees.
With the 1st and 2nd mortgage option, you compare the payment that you will
make on this second mortgage to determine how quickly you need to sell your
home in order to save money.
The above example would have a 2nd mortgage for $30,000.
At 8.25% on the 2nd mortgage, th epayment would be just $225 a month and
if you sell your house in 3 months, your total cost would only be $675 instead
of a thousand.
Even with an interest rate of 10% on the 2nd mortgage, the interest you
pay on that second mortgage would only total $1,500 in 6 months.
Summary
A bridge loan is a great option for borrowers who do not have the neccesary
income to make two payments at once as long as there is enough equity in
the current home to pay all the fees.
In addition, since the interest is paid for 6 months on the current home,
this relieves the stress of having to make two payments.
For borrowers who can make both payments comfortably, the additional cost
of paying for a refinance to create the bridge loan often outweighs the
payment on a second mortgage for a few months.
Just a reminder, of course, but if you are selling a house in a marketplace
where homes are taking a long time to sell, you may end up with two houses
and bridge loans are really only a good product for areas where homes do
not stay on the market for longer than 90 days.
If you have any other questions about Bridge Loans, please email me, call
me or use the online chat in order to ask the questions.
| |
|
| |
