Cindy writes:

Hi,

I may need a bridge loan as I have an offer accepted on a house with a
contingency to sell mine within 90 days. I'm concerned with the state of the
housing market and don't want to lose the house I put an offer on as it's
smaller and much more economical than my current home. I understand the concept
of bridge loans but don't know the specifics of how they work in terms of
options, time limits, etc.

Any experience with them? If so, I'd appreciate your
comments...thanks!

Here's where a good reputable independent mortgage broker can really
add some value to your life. How to navigate this is really
dependent on a lot of things in your specific situation, your credit,
assets, etc.

But, I had some overlap in my last home purchase, and rather than a
bridge loan, what worked out for me was:

I choose the ultimate payment I was comfortable with long
term. I set my first mortgage amount on the new home to that
level to achieve that payment once home A sells.

Have a 2nd mortgage on the new home in the form on a home
equity line. Once home #1 sold, I'd pay this down
essentially to 0. In my case, I finanaced a total of 85% of
the new home splitting 55% first mortgage, 30% HELOC. It
turned out to be cheaper than only 80% LTV because it pushed
the HELOC into a cheaper rate due to its size.

To come up with down payment on home #2, I opened/extended a
home equity line secured against home #1. This gave me the
down payment money for home #2, room to replace the carpet in
home #2, plus a lot of cushion to make payment out of for the
other loans for about a year if house #1 didn't sell in a
timely fashion. I ended up selling home #1 in 6months. I had
a to pay a small early closure fee on this HELOC because it
was only open a few months, but it was only a few hundred
bucks of actual closing costs to reimburse the lender on the
no-closing cost HELOC. Once home #1 closed, the HELOC and
first mortgage against it were paid off, and cash from closing
was used to pay HELOC on home #2 down to 0, leaving me just
with the first mortgage on home #2.


You'll need good credit and other assets to show (e.g. 401k or other
investments) to have the lender comfortable, but it all worked nicely
for me. There are a few ways to skin this cat, but that was the one
that made the most sense for me.

Also it's time to do a gut check. Owning two homes and watching the
negative cash flow even for a few months can wear on ya. I know it
stressed me out quite a bit, but it all worked out and it just makes
the new joint that much sweeter.

Best Regards,
--
Todd H.
http://www.toddh.net/

Cindy wrote:

What is HELOC?


Home Equity Line of credit - also known as a second mortgage.

It's only been ont he market 3 weeks but the market isn't looking
very good right now.

Three weeks isn't a long time. Especially as this is very early in the selling
season. If you go 60 days, you may need to rethink your asking price and do some
creative marketing.

Cindy writes:

Thanks for the insight, Todd. Unfortunately I'm not in a position to do much
with my current house as I'm at about 80% on financing vs. appraised value. What
is HELOC?

Home equity line of credit. HELOCS are very flexible and can be drawn
on or paid down very flexibly. You only pay interest on the amount of
money you have out at a given time. Kinda likea credit card with more
reasonable terms.

This is as opposed to a home equity loan where you draw all the
principal of it at one time, and pay it back over a schedule.

The gut check comment is definitely a concern for me. I so want this new place
and the reduced monthly cash flow it will generate and want to get out of my
current house. It's only been ont he market 3 weeks but the market isn't looking
very good right now.

Hopefully better than it looked for me in October in Chicago last
year though!

The good news is that your contract is written such that you have 90
days for free.

--
Todd H.
http://www.toddh.net/