Bridge Loan

Are you worried about buying a new house and still own your current one? Do you have equity in your current house and was planning on using that for a downpayment? If your seller will not accept a contingent contract on you selling your current home, there is still a way to purchase that home.

First, what is a contingent contract? It is a promise to buy that home subject to something happening. In the case above, it is subject to you selling your home. As a home builder, we very rarely accept a contingent contract. As a seller, you do not have a guaranteed contract because you are hoping that the buyer can sell their home. The worry on the sellers point is, will the buyer sell their home in a reasonable time? Is the buyer’s home too overpriced for the market? Will the buyer get enough cash when it is sold to qualify for a loan on the house they are buying? These are all valid concerns and can kill your deal.

A solution. You can ask your bank for a bridge loan. What the bank will do is payoff your mortgage on your existing home and lend you the money to purchase the new home. Most of the time the lender will put your combined mortgage on interest only payments until you can sell your first home. This will make it easier for the borrower to afford the payment instead of paying two mortgages. When your old home sells, you then pay down your mortgage and then refinance it to a fixed or adjustable rate mortgage.

Some negatives about a bridge loan. Expect to pay two sets of closing costs. Normally, you are not guaranteed your interest rate on the final loan. You now have two houses that you need to maintain until one sells.

A bridge loan will only work if there is enough equity in your existing home and you qualify for the mortgage. Each bank will have a different set of requirements. I encourage you to talk to a local community bank, since they are more likely to look past the numbers on a spreadsheet and understand the situation.