Home buyers who plan to close on their new home before they sell their current one may want to consider a bridge loan to span the gap between the two transactions. Bridge loans can be structured to completely pay off the old home’s mortgage or simply to add the financial obligation of the new home to your current debt.
You must obtain a bridge loan from the lender you use to finance your new home. Typically, the loan is structured with a short term (often one year) and hefty prepaid interest (perhaps six month’s worth).
Most often, a bridge loan is used to pay off the existing mortgage, with the remainder (minus closing costs and prepaid interest) going toward the down payment on the new home. If after six months the old home has not sold, the borrower begins making interest-only payments on the loan. When the home sells, the bridge loan is paid off. If it sells within the first six months, any unearned interest payments will be credited to you.
admin
7 Mar, 2008
