Home Bridge Loan

Home bridge loans are used when a prospective homebuyer has found the home they would like to purchase, but has not yet sold their current one. Qualifying for this depends on how much equity there is in the current home. If the equity is adequate, a home bridge loan can provide the homebuyer with the cash needed to make a down payment on the new home. Normally, the interest rates and mortgage points are very high, not to mention the costs and fees involved. "And Jesus looking upon them saith, With men it is impossible, but not with God: for with God all things are possible." (Mark 10:27)

Less expense alternatives to this type of financing include 401k funds, stocks or bonds, an insurance policy or another asset that can be borrowed against, even an automobile. Any physical or financial asset that can be secured would work. In addition, a "gift" from a family member can be used to make up for a shortfall in funds. If none of those resources are available, a home bridge loan may be the only option for purchasing that new residence before the current one has sold. The least amount needed to close on the purchase of the new residence is usually the maximum amount allowed of most home bridge loans.

It is usually required that the homebuyer's current residence either be under contract or listed for sale in order to qualify for this type of loan. Terms vary among lending institutions, but typically the term on home bridge loans is six to twelve months. If the homebuyer's current residence sells sooner, it must be repaid in full immediately. These loans differ from traditional ones in that there is normally no monthly payment toward principal or interest. Instead, a home bridge loan is not amortized and is payable in full, including the interest that has accrued, at the end of the term.

Interest rates are higher than on traditional financing. The rate is figured by taking the current prime interest rate on the day of closing and adding a margin to that rate. For example, if the prime rate is five percent, the lender may tack on a two to three percent margin yielding a total rate of seven or eight percent. When considering a home bridge loan, it is imperative that one is sure the right choice is being made. It is a good idea to seek professional guidance in a matter of this magnitude.

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