A Better Bridge part 2

This month is the second in a two part series. Last month I covered bridge financing (buying a new home, before your old home sells) for people who can qualify in a traditional sense for both house payments. This month I wanted to cover the options when that is not the case.

For these circumstances, I want to start with a much stronger word of caution. There is a reason banks and mortgage companies use debt-to-income ratios analysis, when it comes to qualifying you for a loan. For consumers that don’t qualify on this cash flow basis, you could find yourself in a world of hurt carrying two payments. So be very sure you have some other plan to stem the tide. This back up should be in the form of access to a large amount of liquid reserves. That may be cash in a bank or financial institution. It may be access to an over abundance of equity in the old property, or a very wealthy uncle for that matter. But make no mistake about it; you will need other assets to make this work. If not, then you are better advised to wait until your home sells, before buying a new home.

OK enough said. You have a few options here as well. One option is what I call a “throw away” loan. The mortgage industry has several products that offer you the ability to qualify without ratio analysis being done, or allow you to “state” your income without formal verification. This latter is a slippery slope and another word of caution is warranted. Just be careful not to inadvertently become involved in any thing bordering on fraud. Be creative, but be reasonable.

With a “throw away” loan the key is to not pay much in the form of closing costs, since you only plan on using it for a very short term. One technique might be to use a “No Doc” loan (meaning you don’t give any information except a credit report) that has an “interest only” payment feature. These types of products generally go as high as 95% of the purchase price. So you will still need a small down payment from another source. Another variety of this may be a “blanket loan” from a bank. These work well when you have a LOT of equity in the old home. In a blanket loan, the bank makes you a new mortgage (sometimes for a 100% of the price), but liens both properties. It is usually an “interest only” payment, or depending on the amount of equity, you may even be able to get a “single pay” feature. That means you have no monthly payments until the old house sells, and the interest is just accruing against the loan balance. The message here is there are lots of options regardless of your situation. Just be careful and try not and put yourself on the deck of a sinking ship, with regards to your finances.

For expert advice on this or any other aspect of home finance, consult with a professional. Dan Smith can be reached at 303-674-0201 or visit him on his web site at www.ColoradoHomeLoans.com .