Home Mortgage Bridge Loans

First the Basics

So, what are home mortgage bridge loans? As the name suggests, it acts as a bridge when you are buying one house while in the process of selling another.

Although there are different types of bridge financing such as for business applications, we'll just stick to two types here dealing with residential properties.

These residential mortgage bridge loans are meant to be short term, temporary solution, for someone buying a "must have" property, while they sell their present home, or wait for their presently sold property to close.

In most cases the lender fronts the necessary funds to purchase the new house, while you wait to sell your present property to use those funds to pay off the bridge mortgage.

For a really simple look at Home Mortgage Bridge Loans.

• The home mortgage bridge loans pay off your existing mortgage.
• You are given the monies required to make the down payment on the new home.
• In most cases you don't have to make payments in the short term.
• When your present house sells and closes, you pay off the bridge mortgage in full, plus all interest accumulated.
• In the meanwhile, you would only be making payments on the new contract.
• After possibly 6 months if your old house isn't sold, you may be required to start making interest payments on the bridge loan.

• A home mortgage bridge loan is set up so you borrow against the equity of your present house. This may be approximately 80% of the equity. - Example: Your house is appraised at $275,000.00. - Your present mortgage is $125,000.00 - Your equity is $150,000.00 - 80% of $150,000.00 is $120,000.00 - Maximum bridge loan = $120,000.00
• You will probably not have to make payments on the bridge loan itself.
• You pay off the bridge loan and all accumulated interest when your old house sells.
• Important: You will have to make payments on your old mortgage PLUS payments on the mortgage of your new house.

Here are some situations where a residential mortgage bridge loan might be a good idea:

• Your first name is Bill and you can't even start to count the amount of money you have available. (The task is just to daunting). :-)
• You are very comfortable carrying two mortgages or paying interest on a bridge loan plus your new mortgage.
• The real estate market is sizzling HOT and houses are selling in very short periods of time. Multiple offers are written as soon as a house goes on the market.
• Gambling gives you an awesome rush and you love living life on the edge. :-)

You are gambling that your present house will sell and close, before you run into some financial difficulties.

Your lender should also help guide and advise you through this, but it's up to you to make the decision.

Your lender may also say no and not allow the bridge financing.

As in the case of most things on this website, if you are considering a bridge do your home work first, not when you are under a great deal of pressure to act.

Here are some reasons, not to use residential bridge loans:

• Money is tight and if you suddenly have to start making 2 mortgage payments, or extra interest on bridge loans, you will start a slippery financial slide backwards.
• The real estate market is slow or sluggish and there are lots of houses on the market for sale.
• When you think of putting a $1.00 bill into a slot machine, or playing poker online with a credit card, you get physically ill.

• Due to the usual short term and placement of residential bridge loans, the interest rate is usually higher than a regular homeowner's loan. Ask what the rate is first.
• There are extra fees associated with bridge loans including possible up-front fees. Check with your lender for disclosure first so there are no surprises.
• Be prepared for the worst case scenario. Ask yourself, "What happens if after 6 months, my house is still not sold?"

Here are a few things you might consider before doing home mortgage bridge loans.

• Make your offer conditional on sale of your property first. - This will at least buy you some time until the seller receives another offer and you have to then make a decision.
NOTE: If you are considering bridge financing should you be called on the conditional, set up the terms with your lender before you get the notice.
• Ask your lender for all possible solutions such as a straight line of credit, or an equity loan on your present house.
• Wait until your house sells first before going out and seeing that home you just have to own! In other words, don't tempt yourself.

This is a very basic page dealing with home mortgage bridge loans. The main points of this whole exercise are:

• Make you aware of another option that you may consider.
• Suggest that you go talk to your mortgage lender before you put an offer on your next house to look at your options.

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