Bridge loan in real estate

[sengsational]

In a case where you want to buy one house and sell another, and also want an overlap of a week or so to move, I guess there's this 'bridge loan' thing. I'm looking for some wisdom, if anyone has experience with this. Let's also say the seller isn't agreeing to allowing the move-in before the closing (that would be much preferred, obviously).

Say the new house would be less than 10% loan (90%+ paid for) given the wad of cash from the sale of the existing house. But that cash won't be available for a week (for the convenience of owning both houses during the move).

In another wrinkle, let's say the banker is saying they want to write-up the loan for the new place, and later iron out the details of the bridge loan. Again, no experience with this, but that seems weird to me. Wouldn't both "deals" be nailed-down at the same time?

And another final wrinkle that bugs me. The banker wants to roll-in a 3.9% car loan into the deal. So forcing a payoff on a low interest rate car loan, turning it into a higher rate mortgage loan. The excuse is something about "debt ratio", which is puzzling to me, because the debt just moves and doesn't change.

 

[athena53]

I've never done a bridge loan but I'd say find another banker or a mortgage broker. I think I used LendingTree once for a refinance and liked them but it was decades ago. From this link it appears they do bridge loans. https://www.lendingtree.com/home/mortgage/bridge-financing-basics/

Folding in a 3.9% car loan (and, of course, extending the payment period since it's now included in the mortgage) would be a hard No.

 

[MichaelB]

Bridge loans are pretty straightforward. The way this is structured is not. The bridge loan and the home loan should be done at the same time and the car loan has no business in this transaction.

I agree with Athena53, look for a new banker

 

[OldShooter]

You need to find another banker just on general principles. That car loan thing is a red flag, particularly because you do not understand it.

We had a situation similar to yours last year and we handled it by selling property #1 with possession delayed by a 5 weeks. No money issues as we got paid and had the proceeds prior to needing them for property #2. There was a rental clause that would have made it very expensive for us to retain possession past the agreed-upon date.

 

[athena53]

Since the OP is ultimately going to finance only 10% of the house purchase, it's possible that the mortgage is too small for the bank to think they can make a profit. I know that mortgages less than $100K can't be re-sold on the secondary market. Maybe they're trying to make extra $$$ by lending them the 10% PLUS the amount of the car loan?

 

[sengsational]

Since the OP is ultimately going to finance only 10% of the house purchase, it's possible that the mortgage is too small for the bank to think they can make a profit. I know that mortgages less than $100K can't be re-sold on the secondary market. Maybe they're trying to make extra $$$ by lending them the 10% PLUS the amount of the car loan?

That could be it. The loan is under 50K with the auto loan rolled into it.


BTW, this isn't for me, I'm just trying to offer guidance.

 

[athena53]

Could you start fresh with another banker, borrow $100K and then make a payment of $50K extra principal with the first monthly payment?

 

[Kings over Queens]

I did it once. Bank charged me a point on the bridge loan, even though they had financed the house i was selling and the house i was purchasing.

Had i known then what i know now id have gone ti a different bank.

 

[retire48in2018]

I was looking into options - but different scenario.


Bridge loans that I found had a lot of fees. Some even had closing cost like charges too.

I could get a loan against my funds at fidelity for just an interest rate charge. Much easier & less fees.

Some plans allow a 30-day 401k withdrawal / and if returned within that time / no penalty, taxes, etc

 

[retire48in2018]

Another option - 60-day indirect rollover of IRA

Move funds to yourself. As long as you redeposit within 60 days - no penalty or taxes

 

[Badger]

I don't know about bridge loans but when I bought the house in the early 80s in which I am presently living I called the realtor who listed it. The house had been sitting vacant for awhile and I told the realtor that I would let her list my house and I would buy the vacant house as long as she would sell mine first and the other house would be available to me. I didn't care what either sold for as long as I only had to pay X amount total when both deals were made. What a deal for both of us. She would get the maximum as the listing realtor on two houses and I would get the vacant house for a set price that we agreed to.
My house went on the market the next day and sold 2 days later. In a few more days I had the vacant house.
After a bit of repairs my house is now worth 24+ times what I paid for it. I don't know if anyone has tried this before but it worked for me.

Cheers!

 

[JDARNELL]

I did something similar one time. I used a large variable 2nd on a new house knowing that I was going to pay it off when I sold house number 1. Closing costs were paid by the seller on house 2 so I got the mortgage amount I wanted on the first loan on the 2nd house and only used the money about 30 days. Banker was pissed but he got over it.

 

[sengsational]

I did it once. Bank charged me a point on the bridge loan, even though they had financed the house i was selling and the house i was purchasing.

Had i known then what i know now id have gone ti a different bank.

If I understand this accurately, it seems to me that the bridge loan is too much risk.

So you close on the new place first, and you have the small mortgage, plus the bridge loan, and your old mortgage. You have 3 payments and your cash flow situation can afford only the small mortgage.

Now you get to closing, selling the old house, and a wrinkle shows up. I'm not sure what the rate is, but it seems like quite a few fail to execute, and the house needs to go back on the market instead of paying off the bridge loan and original mortgage. And it took a year to get this buyer, houses there sell primarily in summer.

So now you have cash flow to support your small mortgage, but you need to pay the bridge loan and the original mortgage. That seems like a risk I wouldn't be willing to take for the convenience of not having my stuff in storage for a day or two.

 

[Montecfo]

Whenever I hear the word "bridge loan" I recoil reflexively.

Lots of people got in a bind in the 70s and 80s doing bridge loans. Then the market changed, the sale side fell out and the purchaser ended up with two properties and facing possible foreclosure in a bad market.

Right now this is hard to imagine but we are in a slowing economy and markets change quickly.

I'm guessing if the seller needs a bridge loan, he or she cannot afford to carry two mortgages.

I would sell my place, store my stuff with the movers and close on new property post sale, unless very comfortable with my liquidity and balance sheet.

 

[Piper20]

We’re buying a new home in a 55+. Taking a 30 yr loan for $200K. When the old house sells we will pay off the loan. No prepayment penalty.

To old for temp housing and storing stuff.

 

[sengsational]

...
I'm guessing if the seller needs a bridge loan, he or she cannot afford to carry two mortgages.

Yep.

I would sell my place, store my stuff with the movers and close on new property post sale, unless very comfortable with my liquidity and balance sheet.

Me too, but I get that one might be too old to fiddle with storing their stuff.

 

[athena53]

Yep.


Me too, but I get that one might be too old to fiddle with storing their stuff.

Yeah, DH and I did that- lived in an Extended Stay place without most of our stuff for a week and had to store liquids (e.g. alcohol, cleaning stuff) and house plants with former neighbors because movers wouldn't transport them and/or storage might harm them. In our case, buyers of our old place wanted occupancy a week before sellers of our new place were willing to vacate. Fortunately, both closings took place as planned.

 

[Montecfo]

Yep.


Me too, but I get that one might be too old to fiddle with storing their stuff.

Sure.

It is all risk/reward.

I don't think anyone wants inconvenience. But it boils down to what you are willing to pay for it.

And which is worse.