Many times consumers find the home of their dreams unexpectedly before they have time to arrange their financial situation to be in a positing to buy. A bridge loan allows a consumer to close on the purchase of a new residence without having to making a contingent offer. The currently owned home will not close until after the close of the new residence. A bridge loan allows the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid.
They can then sell their departing residence at their own pace which gives them time to hang out for the true market value and not have to fire sale the property.
Many consumers and agents can be leery of the costs associated with a bridge loan however when taking a closer look at the details it can make financial sense.
Here are the numbers based on a $500,000 purchase price with a $450,000 loan amount;
Difference in interest rate from a 9.50% and 4.50% (rate on a regular conventional loan is $1875 per month
Assuming 4 months market time to sell their current home and obtain a regular conventional loan = $7500
The total cost is also a write off and the potential savings could be much greater as the numbers illustrated are very conservative.
Many times a seller will take a 10 day close, non-contingent bridge loan offer at 5% lower price than an offer with a typical 30 day close traditional loan so there are scenarios where using a bridge loan could be profitable.
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