Unless you have enough excess income to buy a second home without selling your current abode, you will have to play the timing game; finding a home to purchase while finding a buyer for your own. This can be especially sticky if you are buying in an area with a hotter market than the one youre leaving. Most sellers wont be willing to accept contingent offers (you buying their home is contingent on you selling your home) because of the overwhelming demand in the area manifest by the numerous potential buyers beating down their door.
Under these competitive conditions, a bridge loan may be just what you need to avoid missing out on a time sensitive real estate purchase. Not sure how to go about securing a bridge loan? Eventually youll go through a bank or private lender to get a bridge loan, but it pays to know the basics before you set foot into the local loan office.
Bridge Loan Basics
Strictly defined, a bridge loan is a form of second trust that is collateralized by your present home in a manner that allows the proceeds to be used for closing on a new house before the old house is sold.
The fact that you are not immediately required to sell your old home makes a bridge loan the logical solution for people in relatively cold markets who need to act quickly in order to close on a new home.
Most people who get a bridge loan will use the extra cash to pay off the mortgage on the old home, deduct any closing costs and prepaid interest, and put the remainder towards a down payment on the new home.
A bridge loan entails substantial risk for the lender because the old home may not sell for some time. Therefore, you can expect relatively high interest rates and short terms of six months to a year. The borrower usually begins making interest payments after the end of the term if the old house still hasnt sold.
After the old home sells, the bridge loan is paid off. If the house sells within the term limit, all unearned interest is credited back to the borrower.
Under these competitive conditions, a bridge loan may be just what you need to avoid missing out on a time sensitive real estate purchase. Not sure how to go about securing a bridge loan? Eventually youll go through a bank or private lender to get a bridge loan, but it pays to know the basics before you set foot into the local loan office.
Bridge Loan Basics
Strictly defined, a bridge loan is a form of second trust that is collateralized by your present home in a manner that allows the proceeds to be used for closing on a new house before the old house is sold.
The fact that you are not immediately required to sell your old home makes a bridge loan the logical solution for people in relatively cold markets who need to act quickly in order to close on a new home.
Most people who get a bridge loan will use the extra cash to pay off the mortgage on the old home, deduct any closing costs and prepaid interest, and put the remainder towards a down payment on the new home.
A bridge loan entails substantial risk for the lender because the old home may not sell for some time. Therefore, you can expect relatively high interest rates and short terms of six months to a year. The borrower usually begins making interest payments after the end of the term if the old house still hasnt sold.
After the old home sells, the bridge loan is paid off. If the house sells within the term limit, all unearned interest is credited back to the borrower.
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