How costly are Bridge (or Swing) Loans? Would I be better off taking a low-ball offer for my house or waiting?

You will need to weigh the pro's and con's on this one, if you have not already done so. Take into consideration that a Bridge Loan will have 2-3,000.00 of closing costs associated with it, you will have a interest only payments after 6 months, so that is a additional payment ontop of your other debit.

But, Bridge Loans have saved the day for home buyers in a pinch, but people looking for a «bridge loan to span the gap between the sale of an old home and the purchase of a new one should ask if the cost is worth it. Or if you could take out a HELOC (Home Equity Line of Credit) on your present home, and put that money down on your new home. The closing costs on a HELOC is much lower than on a Bridge Loan. Bridge Loans costs run between 2-3,000 depending on the amount of the loan.



Most Experts say people would be better off staying put until they've unloaded their first residence. If that's impossible, they warn, be prepared to shoulder a heavy burden.

»There are many sad stories about homeowners who took bridge loans, and our best advice would be, 'Don't do it,' " says Richard Roll, president of the American Homeowners Association in Stamford, Conn. «You can find yourself in a totally untenable position, and you can lose your first house.»

Terms can vary widely



A tool used by movers in a bind, bridge loans vary widely in their terms, costs and conditions. Some are structured so they completely pay off the old home's first mortgage at the bridge loan's closing, while others pile the new debt on top of the old. Borrowers also may encounter loans that deal differently with interest. Some carry monthly payments, while others require either up-front or end-of-the-term lump-sum interest payments.

Most share a handful of general characteristics though. They usually run for six month terms and are secured by the borrower's old home. A lender also seldom extends a bridge loan unless the borrower agrees to finance the new home's mortgage with the same institution. As for rates, they accrue interest at anywhere from the prime rate to prime plus 2 percent.

For example, One Bridge loan would total $70,000 on a customer's old $100,000 home with $50,000 in mortgage debt outstanding, Of that, $50,000 would go toward the old house's lien and a few thousand would cover the bridge loan's closing costs, origination charges and fees, leaving the customer with about $16,000 for the new home's down payment, closing costs and fees.

This example helps to show how the high fees associated with bridge loans can cause problems. A person for example, would end up paying between $2,000 and $3,000 for closing on the bridge loan, 1.5 percent to 2 percent of its value for an origination fee, and another couple thousand dollars for closing on the new home's mortgage.

What if the sale goes sour?



Real estate market risks can exacerbate the danger. For example, some lenders are usually willing to extend bridge loans slightly beyond the standard six months. But what happens to a homeowner who gets the financing and extension, so the old home's buyer can have a little more time, only to see the transaction fall through?

«Let's say they need some of that money to buy their new house, so it's predicated on selling their old house. „What happens if they don't sell that house, or if the buyer doesn't get financing?“ In such a case, the lender could go as far as to foreclose on the old property after the bridge loan extensions expired, or a customer could deed the property to the bank, which would sell it and apply the proceeds toward paying off the loan.

Consider other options



For those trying to stay away from bridge financing, borrowing against a 401(k) plan or taking out loans secured by stocks, bonds or other assets are options. Some lenders also offer hybrid mortgage products that behave similarly to bridge loans.

Total debt climbs



Whether a homeowner takes a bridge loan or a hybrid stand-in, or a HELOC however, a significant amount of new debt will end up being added to the pile.

But even though they aren't the best deal, bridge loans or other short-term mortgage financing products may be necessary when home buyers land in tight spots, lenders say. There will always be people relocating for work without much advance notice, trying to keep others from beating them to the punch on a property, or needing help with the expensive up-front costs of buying a new home before their old one sells.

»It's a way for the customer to get into that home without having to go through all the gyrations of trying to get cash for a down payment,"

Bridge loans nevertheless remain relatively obscure in a lending landscape dominated by more widely publicized home equity loans and lines of credit.

Types Of Lenders: Bridge Loans may be given by Funding Companies, Traditional Banks, or Commercial Bank and Credit Companies.



Recap:



Typically a bridge loan is structured as a one year loan. The bridge loan pays off the buyers first house with the remaining funds, minus closing costs and six months of interest, going toward the down payment for the new house.

If after six months the first house has not sold, the buyer will begin making interest-only payments on the bridge loan. When the first house sells, the bridge loan is paid-off. If the old house sells within the first six months, any unearned interest payments will be credited to the buyer.

This is the typical bridge loan scenario for most buyers. In some cases a buyer may qualify for a bridge loan that simply adds the cost of their new house to their current debt.

A bridge loan can help you make a competitive offer on a property even though your first house has yet to sell.

Hope this information Helped.

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