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A Bridge Loan often allows
a buyer to close on his new home without having
to sell his present home. The "Bridge
Loan" also allows the buyer to
avoid having a "Contingency"
or a "First Right of Refusal"
clause in his contract. "Bridge Loans"
are primarily used by buyers who generally have
higher incomes and better credit ratings than
most buyers.
A Bridge Loan is when the Purchaser
of a home borrows "equity" from his
present home in order to make the down payment
on his new home. When a buyer uses a "Bridge
Loan", he must be financially
strong enough and motivated enough to be willing
to carry three loans at one time. These loans
are:
1. The existing mortgage on
his present home
2. The new mortgage on his
new home
3. The interest due on the
temporary "Bridge Loan"
The buyer must be strong enough to meet the
lender's qualifying ratios and financial solvency
to be approved on a bridge loan. Most of the
time, buyers often back off of this option because
they become concerned about the debt they will
be carrying and the uncertainty of the time
it would take to sell their present home.
One of the last options available to buyers
who have a home to sell is to make a Double
Move. This is an option most people
are reluctant to use at first because of the
inconvenience of selling their present home
and then moving to a temporary apartment or
Mom and Dad's basement for an undetermined period
of time. Buyers usually come to this decision
after they find that the homes they're looking
at in their price range and preferred neighborhoods
sell overnight. A volatile market like this
makes it impossible for a First Right
of Refusal Contract to compete with
a contract that does not have a home to sell.
The good news is that once this seller has liquidated
his home, he will be in the position of the
non-contingent buyer. His only other option
to compete would be a "Bridge Loan".
It usually takes the buyer losing about 2-3
homes he really liked to acquire the wisdom
to make this hard decision.
The Seller Rent Back guarantees
the "Seller" that his home is sold
and that he will have the funds to close on
his new home. The "Seller" closes
on his present home but maintains possession
until a pre-determined time in the future, usually
at a proration of the "Purchaser's"
new house payment. This is advantageous to the
"Seller" because he knows he will
not have the problems of having to sell his
home in the future and having to move. The advantage
to the "Purchaser" is that the "Purchaser"
knows the home is his and nobody can beat him
out of it. In addition, the "Purchaser"
can guarantee the low interest rates of today
rather than what the interest rates will be
in the future if they start to go up! Lenders
only "lock" their interest rates for
about 30 to 60 days without requiring points
to "lock the rate."
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