From Debt Into Retirement

As homes are constantly being bought and sold the period of time between a sale and a purchase is often funded by a mortgage bridge loan. This variation of a home loan is gaining popularity as buyers are looking for ways to find a down payment on the new home they wish to purchase.

There is another option that can be used to gain this down payment and it is called a home equity loan. While this type of loan is generally less expensive, bridging loans offer the buyer more benefits.

A mortgage bridge loan is a temporary loan. It is called a bridge loan as it bridges the gap between the sale of a old home and the purchase of a new home. While an owner is waiting for their home to sell they use the bridging finance available to them in order to secure a deposit for the new home. The current home is then used for security while the lender waits to be paid back the funds.

When looking to see if a customer is qualifies to take out a home loan many lenders will exclude the bridge loan payment amount for qualifying purposes. This is done for a variety of reasons. Some of the reasons lenders are comfortable with buyers taking on two home loan payments for a short time are that they already have a home loan on their current property, the sale of the second property will likely take place before the first one is sold and for a short while between sales the buyer will have the ownership of two homes.

When lending money financial institutions have a little leeway in accepting higher income to debt ratios when the home loan is a conforming loan as they can run the application through an automatic program that underwrites the loan. If however the new home loan is considered a jumbo loan many lenders will aim to restrict the debt to income ratio to about fifty percent.

In terms of fees for bridging loans the rates are variable between lenders. However home buyers can expect to be charged an administration fee, a appraisal fee, an escrow fee as well as title policy, notary, recording and drawing fees. In addition to those fees a borrower will also be charged a loan origination fee. This is based on the amount of money the customer has borrowed and again fees will vary between lenders.

There are many benefits to taking out a bridge loan, the most obvious and immediate being that the buyer can quickly put their home up for sale and start looking for a new house. Another added perk is that often repayments are not required on a bridge loan for a few months or so. Also when the buyer has made a contingent offer on a home and the seller has given them a notice to perform the contingency on the offer can be withdrawn and the buyer can then move ahead with the purchase.

Taking all those benefits into account buyers should also think about the drawbacks of a mortgage bridge loan. One of those is that in comparison to a home equity loan bridging loans are far more expensive. Also the fact that they may not even qualify for a bridging loan and a home loan at the same time should be thought about carefully.

This type of loan is an excellent way for buyers to purchase a new home while their current one is one the market. However it is a big decision and the consequences of it should be thought about very carefully.