Bridge loans are temporary loans that “bridge the gap” between the sales price of a new home and a home buyer’s new mortgage, in the event the buyer’s home has not yet sold. The loan is secured to the buyer’s existing home and the funds are then used as a down payment for the move-up home.
In Tampa Bay’s fast moving real estate market where there are a lot of buyers for fewer houses, bridge loans can ease a home buying delay.
Benefits of a Bridge Loan
- Buyers can immediately put their home on the market and buy without restrictions
- Bridge loans may not require monthly payments for a few months
- If the buyer has made a contingent offer to buy and the seller issues a Notice to Perform, the buyer can remove the contingency to sell and still move forward with the purchase
Downside of a Bridge Loan
- Bridge loans cost more than home equity loans
- Buyers will be qualified by the lender to own two homes and many may not meet this stringent requirement
- Making two mortgage payments, plus accruing interest on a bridge loan, could cause undue stress
The real estate market may be strong enough so that you don’t need a bridge loan. If you do need one, be aware that your home could go unsold for six months or longer, so negotiate terms that allow for an extension to the bridge loan.
Bottom Line: If you have good credit and substantial equity, there may be better options, including a home equity loan, which won’t come with the high interest rate and fees associated with a bridge loan. Or, you may want to consider financing your down payment with your 401k, stocks, and other assets. The key is to know what works best for you.
Bridge Loans Help Fill Gap Between Selling and Buying – WSJ: www.wsj.com
As Rates Rise, the Appeal of Real Estate Bridge Loans Grows: www.institutionalinvestor.com
A Short Course in Bridge Loans – The New York Times: www.nytimes.com