There are situations where in the owner of the home is looking to sell his home and on the same day, be able to purchase a new one. A number of people who are in this situation do so due to the fact that doing this will be a lot more straightforward. However, this option can be at times stressful at to make matters worse, there is a chance that your home will be at risk.
The stress is due to the fact that the homeowner has to be able to get out of the house with all his stuff, get it into the movers and get into the new home and make the deal final. All that done in one day can you imagine how tiring that must be? But how do people find money in situations like this? Well they turn to what we call bridge loans as a source of funds to be able to move into a new property as soon as possible.
bridge loan
This type of loan has a short term period. It is the preferred source of funding of a number of people due to the fact it can provide quick funding that can be used to pay off the down payment of the home that the person will be moving in to. Although we did mention that the selling of the old home and the purchasing of the new one can be done in one day, it is possible to make use of bridge loans in such a way that you don’t need to wait for your old home to be sold before moving into a new house.
To help you get a better understanding about how this all works, let’s make use of an example. You are going to sell your home for five hundred thousand dollars and you set the closing date to be at the 2nd of December. On this home, you still have a mortgage of two hundred fifty thousand dollars this amount is also the equity of the house. You then decide to buy a new house which costs seven hundred thousand dollars and you set the date of purchase to be on the 17th of November. Between the two dates which is the 17th of November and the 2nd of December, you have time to move out from the old home and get into the new home.
You apply for a loan from the bank and you get five hundred twenty five thousand mortgage. You still require one hundred seventy five thousand to close the deal so you apply for a bridge loan of two hundred twenty five thousand. Take note it is twenty five thousand dollars less than the remaining equity you had on your home. Understand that banks will not give loans that are more than ninety percent of the equity. In addition to that, the interest rates to pay off the loan will vary. Just expect to pay an interest of around two percent or more.