What happens to the mortgage on our existing house if we use a bridge loan to purchase a new house?

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If I use a bridge loan to buy a new house, what, if anything happens to the mortgage on our existing house? Are we then responsible for our first mortgage, bridge loan payments and the new morgage? What is the benefit (other than obviosly being able to purchase the new house) of that?

4 Comments
  1. Reply
    peaches
    January 23, 2011 at 10:58 am

    I believe you have answered your own question. As far as I remember, “bridge financing”,allows you to “purchase” the NEW dwelling, while your money is “held up” waiting for the sale of your existing dwelling. Yes – as far as I know, (check with any “large” Real Estate Companies, there are tons on the net! You must be very diligent in your paperwork – if your going to do this… When listing your existing residence, you must have a clause in there protecting yourself. I personally would first “sell your residence, then buy the new one!(are you afraid you won’t get the new house you want?) or (were you just asking)?.If you are in the US – look carefully – in some states the real estate market is at a standstill. Large homes are NOT selling,for many reasons,maintenance,property taxes,utilities! Be careful – PS: you can save a bundle -selling your own residence and it isn’t difficult. Good Luck and I’ll watch for your next question, which I am quite sure you are going to ask.

  2. Reply
    W. E
    January 23, 2011 at 11:02 am

    1. On the Bridge loan, you can take out up to 85 percent of the value, and put it into a new home – payment is deferred for 6 months. That will enable you to #1 buy the new home, or build the new home #2 gives you time to sell your other home.

    2. You are still responsible for all mortgages.

    3. Lenders will take a hard look at your credit, your middle credit score needs to be in the 600’s for the Bridge loan. The middle score varies from lender to lender rom 620 – 680 and higher. Other factors come into play.

    BRIDGE LOAN:
    It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically enables you to have a place to live after the closing on the old home.

    The key to a bridge loan is having a qualified buyer and a signed contract. Usually, the lender issuing the mortgage loan on the new home will write the interim financing as a personal note due at settlement on the property being sold.
    If, however, there is no buyer for the property you have up for sale, most lenders will place a lien on the property, thereby making that bridge loan a kind of second mortgage.

    Things to consider: interest rates are high, points are high, and there are costs and fees involved on bridge loans. It may be cheaper to borrow from your 401(K). Actually, any secured loan is acceptable to lenders for the down payment. So if you have stocks or bonds or an insurance policy, you can borrow against them as well.

    So basiclly it is this: A “bridge loan” is financing secured by your current home, a home typically listed for sale. The bridge loan is used to finance the purchase of the second home and is paid off when the first home sells.

    In addition to other questions, when considering a bridge loan seller/borrowers should ask about interest costs, up-front fees (because bridge loans are short-term financing, it’s better to pay a higher interest rate than points for a loan which will generally last just a few weeks or months), and what happens if house #1 takes longer to sell than anticipated.

  3. Reply
    Kathleen M
    January 23, 2011 at 11:31 am

    A bridge loan will cover both the house you own and the house you are buying. If you currently have a loan on your house, and the bank is going to give you a bridge loan in addition to your original loan, then you will have two payments. Check with your bank, and see what they are proposing. If you don’t owe much on your first loan, or have alot of equity built up they may release your first mortgage and you’d just have the one mortgage covering both pieces.

  4. Reply
    Price is what you pay for value.
    January 23, 2011 at 11:38 am

    Not sure if this would help. Usually, a housing market correction last for years. It is unlikely things will brighten up in a few months, afterall, this bubble took 5 years for form.

    It might be better to give some discount so you unload the house quickly and can use the gain of the home to make money elsewhere quickly. At the same time, you will save money by not paying mortgage for the next 5 months.

    For example, if mortgage is $ 2500/mo. and you have $ 300,000 gain sitting in the house, by selling it now rather than 5 months later will save you $ 12500. It will also earn you as much as $ 7000 from interests (Assuming CD are paying 5.5% or higher).

    Total financial benefit for selling early would be $ 20,000. I would give buyer some discount just because of that.

    Finally, keeping a house in selling condition is a lot of work. If your realtor does staging, it costs extra to rent furnitures. If you are living in the unit, it takes extra effort to keep it clean. So, sell it fast!

    http://money.cnn.com/2006/09/08/real_estate/caught_in_the_bubble/index.htm?postversion=2006090814
    http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514

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