Buying a new home before you have sold your existing home
Bridge loan or Home Equity loan?
A client of mine was relocating to the Washington, D.C. area and had not yet sold her house in southwestern Virginia. She found a home in Maryland she wanted to purchase and she said: “To purchase the property, I would have to sell mine. I want to put a large down payment with the sale of my house and have reasonable payments in the new one (there is not a great difference in the value of the two). How does this work? Anyone know anything about bridge loans? Should I take out an equity loan to pay for the new one until I sell?”
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Bridge loans tend to be more expensive with closing costs and carry a higher interest rate. Origination points are also a common addition to bridge loans. Just like a home equity loan, the borrower still secures this bridge loan with the equity on their property. Home equity lines of credit have become very popular because of their flexibility, convenience and low cost. I suggested she take advantage of the equity on her current home and get a home equity line of credit large enough to cover her down payment on the new house. The rate was prime minus 2.5% for the first 9 months (approx. 5.75% at the time) and she was able to pay interest-only, which made her payments even that much lower than a fully amortized bridge loan. The closing costs were paid for by the lender and there were no points involved… and this is typical of the equity lines available. My client signed the loan docs and we closed the loan in less than 3 weeks, giving her enough money to purchase the new home and eventually sell her home in Virginia. When looking into a bridge loan, consider a home equity line of credit as a great alternative.
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Mark Zaidan, Choice Finance®
Tags: bridge loan, buying a home before you sell, home equity loan
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on Thursday, January 24th, 2008 at 12:24 pm and is filed under 1) Questions for Loan Officer, 2) General.
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May 3rd, 2008 at 11:17 am
Great explanation of a bridge loan and its common use. My firm offers bridge loans for commercial ventures. Most are supported by private investors who we work with closely. For more details visit basefunding.com
May 7th, 2008 at 12:53 pm
I think the most important step is to be realistic in what you can and cannot do. I’ve seen so many first time home buyers jump into something they cannot afford only because they have big dreams.
Do your homework done first if you are thinking about taking out a loan or mortgage. The time spent looking into your options can save you a good deal of money later on.