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Buying a Home? Don't Get Saddled with Two Mortgage
Payments
I have a lot of friends and family who are currently buying
houses. Many of them have had a problem with timing. In other
words, they buy a house and sign a contract that says that they
have to pay the seller in 30 days. (Incidentally, it's never wise
to go less than 45 days.) Now, it takes two to three weeks to
sell their house, and they sign a 30-45 day contract, so they
don't get their money in time to help finance the down payment
for the house they are buying. The answer to this problem is
simple. Get a bridge loan.
Now, in order to make this strategy work, you need a
considerable amount of equity in your current home. Let's say,
for example, you are selling a $200,000 home, and you owe
$110,000. You have $90,000 in equity (200,000 value minus your
debt of 110,000). A bridge loan uses the equity in your home to
"bridge" the gap between the sale of your home and the purchase
of your new home.
Here's how it works. A bank will loan you 80 percent of the
value of your current home, or $160,000 in our example (200k
times 80% is 160,000). $110,000 will go toward paying off your
current lender, the one you owe $110,000. The remaining $50,000
is yours to use for down payment money on your new purchase and
moving expenses, or for any reason you like. The beauty of these
loans is that they are treated like home equity lines by the
lender. In other words, you pay interest-only on the loan
(probably 4-6 percent). So, if you had to pay 4 percent,
interest-only on a $160,000 bridge loan, your payment would be
$533.00 per month.
Wait one more minute, though. Another thing about bridge loans
that makes them a truly marvelous tool is that your payments are
deferred for up to 90 days. Imagine getting $160,000 from a
lender to help you pay off a mortgage, put money down on a new
house, and have left over expense money, and you don't make a
single payment for three months. Wow, this is true power! So, in
the long run, you may wind up never making a payment on your
bridge loan. Outside of some small fees to get it, you are
basically getting free money, because you will sell your house
for $200,000 and pay off your bridge loan.
Meanwhile, you now have just your new first mortgage on your
beautiful new home.
Mark Barnes is the author of the new novel, The League, the
first work of fiction, based on fantasy football. He is also an
investment real estate and home loan finance expert. Learn more
about this suspense thriller at http://www.sportsnovels.com Get
his free mortgage finance course at http://www.winningthemortgagegame.com
 MORE RESOURCES updated Thu. February / 09 / 2012
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