Insider Tips
New Ideas in Bridge Financing
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“New Ideas in Bridge Financing”

So you found the home of your dreams and made an offer to buy it, contingent upon the sale of your current home. The offer was accepted, but has a 48 hour first right of refusal attached to it. That means that if another offer comes in, you will either have to remove your contingency or lose the home to the other offer. “Bridge” or “Swing” loan financing refers to a loan that helps you access the equity in your current home, in order to purchase a new home. This can be a scary process to consider since it implies that for some period of time, you will be making payments on two homes. So how can you prepare for this potential, even before you list your current home on the market? Well, a number of new mortgage products may provide an answer that won’t leave you struggling to make ends meet each month.

In order to illustrate the relevant concepts, it makes sense to look at an actual case example. Let’s say Mr. Jones has a current home worth $200,000, on which he owes $160,000. His current payment is $1200.00/mo., which includes tax and insurance. He wants to buy a home for $300,000 and planned to use the $40,000 in equity from his current home, as a down payment for the new one. He has checked with his lender and knows he can afford the new house payment on $260,000 of $1900.00/mo. Unfortunately for him, another offer has come in and he is forced to consider bridge financing. If he can find a bank that will lend him the $40,000, he knows that payment will add another $180.00/mo. to the debt he has to carry. The idea of making total monthly payments of $3200.00/mo, even for a few months, makes his stomach turn. Even though his wife loved the new home, they agreed that there was no way they wanted to live with such a huge monthly payment. They had to let the first right of refusal expire and void their contract. So how could Mr. Jones have prepared for this potential, before he ever went shopping? The answer may be the creative use of Home Equity Lines of Credit (HELOC).

Mr. Wagner has exactly the same needs as Mr. Jones, his neighbor. When he talked to his agent about listing his home for sale, his agent told him that the marketing times had increased in his area. He heard about Mr. Jones’ problem and talked to a very creative local lender (hint, hint) about ways to achieve the new home purchase, without ending up in Mr. Jones’ dilemma. Before listing the home, here is what Mr. Wagner decided to do. He refinanced the $160,000 loan to an “interest only” line of credit. In fact, he was able to finance the entire $200,000 value of his current home, with a new payment of approximately $900.00/mo. He then listed the home and made his own offer on the same $300,000 home. Since the HELOC he got on his current home hadn’t cost much to close, he used another HELOC to buy the new home. His payment on the $260,000 loan was under $1200.00/mo. He planned to refinance the $260,000 to a 30 year fixed rate, just as soon as his old house sold. But managing payments of $2100 was only $200 more a month than the new 30 year fixed payment of $1900.00, and a whole lot better than $3200.00!

Needless to say, Mr. Wagner and Mr. Jones don’t talk to each other any more. But Mr. Wagner is sure glad he found a creative loan officer to work with! If you would like to meet that loan officer yourself, just call Dan Smith. He can be reached at 303-674-2205


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