Bridge loans are harder to find since the financial crisis.
Often a buyer will need to sell an existing property in order to have the down payment necessary to purchase a new one. If the timing doesn’t work – if the new property is found before the old one is sold – the buyer will have to find an alternative source for the down payment. One possibility is a bridge loan – a loan that is secured by the equity in the buyer’s old property. Because bridge loans are short term, they generally have higher fees and interest rates than home equity lines of credit. Bridge loans have become harder to find since the financial crisis.
As the real estate market has heated up, fewer sellers are willing to accept the sale of a buyer’s previous residence as a contingency in a purchase contract. This puts some home buyers in a difficult position. They either have to sell before they know whether or not they are going to have a place to purchase, or they have to come up with the necessary funds to close on a new purchase without having the funds from the sale of their current residence, their ‘trailing home’.
This post housing-crisis mortgage market presents two hurdles to someone who wants a bridge loan. The first is that home equity lenders have become more conservative, the second is that the bridge loan may now make it more difficult for a buyer to qualify for the loan on a new purchase.
Alternatives to a Bridge Loan:
In the past, bridge loans were done simply and inexpensively based on the equity in the buyer’s trailing home; if that house was listed for sale, neither the bridge loan nor the primary mortgage were considered when the buyer was qualifying for a new purchase. This is no longer the case. Now, new regulations require that a lender consider the entire mortgage obligation of a buyer who has not yet sold his prior residence. In other words, buyers must now qualify based on the sum of both mortgages, even if they have substantial equity in their old home, or if it listed for sale. There are some lenders which will consider the potential rental income of the trailing home when deciding whether a buyer qualifies. If any of this applies to you, you may want to speak to a mortgage broker.