Buying a new home can be an exciting event but the situation can become less than ideal if you are ready to close on your dream home but your old one has not sold yet. You may think your only choice is to pay for two mortgages until your old house sells, but this is not the case. There are special loans that can help you called mortgage bridge loans.
The basic idea behind these loans is that it provides relief for first-time home buyers until their old home sells. The situation is not perfect but it can be a lot better than trying to pay two mortgage payments each month. The bad side about bridge loans is that their interest rates are usually much higher, at least 2 percentage points greater than traditional mortgage loans. Plus, they also come with higher fees amounting to well over a couple thousand dollars.
So why a mortgage bridge loan then?
When it comes to mortgage bridge loans, you essentially get a loan to pay the balance of the mortgage on the old home plus an extra amount of money to pay a down payment on the new house. That sounds like you would have to make two mortgage payments each month, but you don’t. What you will do is pay the monthly mortgage on your new home and after you have sold your old home, the money you gain from the sale will go directly to help pay off the balance of the bridge loan.
Bridge loans are meant to be temporary loans and cannot be used as a way to own two houses. The situation can actually be stressful for many people because even though you are not required to pay anything toward to the bridge loan, it will still accrue interest at a rather high rate. The intention when selling your old house is to get an equivalent or greater amount from the sale than the current balance of your bridge loan. Your main goal would be to completely pay off the bridge loan once your old home has been sold.
If you do go this route, try to find a lender that will give you both a new mortgage loan and a bridge loan. When obtaining mortgage bridge loans from the same lender as your home loan, you have a better chance of getting greater percentage rates and lower fees. As with any loan, be sure to read all the details carefully so you know exactly what kind of rates and fees you will be required to pay.