Mike’s Real Estate Show

  The following comes from Marc Kahn a lender here in Santa Rosa. Wise words which enable a buyer to get the good deals being offered in today’s heavily favored “Buyer’s” market.  

“Bridge financing, as the term implies, provides a bridge from a current residence to a new one, in cases where your client needs the money from the old house to close on the new one…but has not yet sold or closed on the old house.

Many banks do not make bridge loans for the simple reason that the subject property, the current home, is either listed for sale, or about to be sold. So for them, there’s no point in making a loan that’s going to be paid off right away. They don’t make much money that way.

Some lenders, however, will make such a loan, and on very favorable terms. Why? Because they also make a loan on the new home, a loan it can keep for a while, or sell in the secondary market.

How favorable are the terms? A lender will typically lend up to 80% of the value of the old house. The loan proceeds are available at the time of the closing on the new house. The loan bears interest only at prime plus 1%. And best of all, there is no payment due for up to 6 months, during which time the interest accrues.

The lender assumes you will sell the old house within 6 months from the purchase of the new one. But just in case you don’t, the bank will extend the payment due date by up to another 6 months.

Here is an example of how this works. A client owned a home worth about $500,000. S/he signed a contract to purchase another slightly larger home for $555,000.

She borrowed $200,000 on the old home (which happened to be owned free and clear), and borrowed $365,000 on the new one. You don’t need a calculator to see that she borrowed slightly more than 100% of the purchase price. What you would not know is that she got a preferred interest rate of interest on her new home, because the loan to value ratio of 66% (365,000/555,000) was attractive to the lender.

Bridge financing is just another tool we can use to help you succeed in making your clients’ housing dreams come true.
It’s a great way to use the equity in one home to purchase another!”

What a “Bridge” loan really does is allows you to present offers without the dreaded “Contingecy Offer” or subject to the selling of your current residence. Even though Sellers are more likely to take this as part of your offer, you won’t be getting the best deal. Whenever you want a concession from a Seller you loose something in return. You are asking the Seller to take their property off the market while you sell your current home. So if you want the best this Buyer’s market has to offer, consider getting the “Bridge” or “Swing” loan and go out there and bargain!