The Beauty of a Bridge Loan

I recently helped a couple successfully close on their new home in Seattle before having to close on their former home in Everett. By using a bridge loan to access equity on the Everett home, they were able to make a winning offer on the Seattle home without it having to be “subject to the sale” of their former home. This help to make their offer far more attractive in a very competitive real estate market.

Here are some other pointers about the bridge loan that I think are pretty cool (besides being able to submit the non-contingent offer).

• With the bridge loan, the buyers did not have to tap into retirement funds. This saved them from having to pay early withdrawal fees and income tax should they have had to tap into their retirement. This saves quite a bit and leaves those funds undisturbed.
• The bridge loan allows the buyer to potentially put down more towards their loan amount so they can have a conforming loan amount or potentially better pricing on the new mortgage.
• The bridge loan allowed the transaction to close without delays caused by waiting for their existing home to close or sale.
• No payments are due on the bridge loan. Interest accrues and the balance is paid off at the closing of the home after it sales.

What’s required:

• The property that is going to be sold does need to be listed prior to closing on the new home.
• The home buyer needs to be able to qualify for both the new home, the former home and a bridge loan payment (even though the payments on the bridge loan are deferred).
• The home that is being sold needs to have enough equity to qualify for a bridge loan and is subject to management approval.

There main drawback with a bridge loan, in my opinion, is that it’s possible the home buyer may have mortgage payments on their former and new home at the same time. There is typically a one month gap (unless the buyer closes with an interest credit on the new home) with closing on a new mortgage that buys some time before the new mortgage payment is due. It’s very important to discuss this with your real estate professional to make sure your home is priced very competitively to avoid a long listing when you have a bridge loan.

If you would like more information about our bridge loans for homes located in Washington state, please contact me!