What is a Bridge Loan?

A bridge loan is essentially a cash out refinance of your existing home that you are trying to sell.  This cash out are the funds you can use as a down payment on your next home purchase.  A true bridge loan does not require a monthly payment.  This allows you to retain your current home while using your home's equity to have a down payment and buy your next home.  The bridge loan and your new loan on your next house have no attachment to each other.  The bridge loan is just a vehicle to help you purchase your next home without having your current home sold.

    When would a bridge loan be the answer? 

Well, you may be in the position of needing a bridge loan in the event you have to write an offer without a home sale contingency.  Or, you may have an accepted offer on a new home with a home sale contingency, and another buyer is potentially bumping you from your primary position.

    A typical bridge loan is structured at 80 to 90% of your home's current value.   This loan will pay off any current liens and will become your new balance, or mortgage on your property.  The net proceeds, after the payoffs and any closing costs have been deducted, will be your down payment on your new purchase.

As mentioned earlier, a bridge loan typically does not require a payment.  However, the cost on a bridge is in two parts.  First, since a bridge loan is a refinance, you may need to get an appraisal.  There is also new title ordered on the loan.  There may be underwriting and closing fees.  The cost on a bridge loan can be as little as $400 and up to $900.  Since no payment is made during the duration of the bridge loan, daily interest is accumulating.  This daily interest will be paid off at the time your current home sells and closes. 

    In most cases, a bridge loan is just needed to cover the time gap between when you need to close on your new home purchase date and when your are scheduled to close on your current home sale.  For example:

            New home purchase closing date = July 30th

            Existing home sale close date = August 30th

    A bridge loan would help you access your equity to close on your purchase before your home sale concludes. 

Bridge loans are typically structured as six month notes.  They can be renewed for another six months, if needed.  This is possible by paying in full the interest that has accumulated from the original six months.  

During the bridge loan period, no escrows will be collected.  Your real estate taxes owed, at the time of your sale, will be collected from you at closing and credited to the buyer.  These taxes will be netted from any remaining profits.  If you are currently escrowing, your current mortgage lender will either net these from your payoff at the bridge loan closing, or send them back to you in the mail within thirty days. 

Please call us with any questions.