BUYING BEFORE SELLING
Sellers often want to buy a new home before selling their current residence for a variety of reasons.
They might want more time to move, more time to fix up their current house before selling, or more time to fix up the new house before moving in. They also sometimes want to make offers on a house they love before there is time to sell their current home.
BRIDGE LOANS
These sellers often ask about “bridge loans” or temporary financing secured by their current residence that will help them buy a new home. We offer various types of bridge loan financing including a Cross Collateralization Loan and basic bridge loan.
Our Cross Collateralization Loan is a 5/1 ARM at 3.5% that goes up to 80% LTV and it is secured by BOTH properties (current and new). It is a single loan that (1) pays off the existing first mortgage on the current residence; (2) pulls cash out form the current residence for down payment funds for the new house; and (3) provides first mortgage funds for the purchase of a new house. When sellers sell their current home and pay down the cross collateralized loan, it re-amortizes automatically.
Our basic bridge loan is similar, as it too goes 80% LTV against the current residence and pays off any existing mortgages.
DRAWBACKS TO BRIDGE LOANS
Many lenders tout their bridge loan options b/c agents like to know they are available, but sellers rarely pursue them b/c of a couple major drawbacks: (1) the low rate options are often difficult to qualify for; and (2) they are too expensive!
Bridge loan lenders know that their loans will be temporary so they do not want to incur significant costs in placing these loans b/c they will not recoup those costs with interest payments.
This means that most bridge loan lenders do not pay commissions to loan officers in the form of “rebate” or “yield spread.” Hence, loan officers need to charge points on top of closing costs if they want to be paid for their efforts.
These points, coupled with non-recurring closing costs, can easily add up to over $10,000, making bridge loans prohibitively expensive in many cases.
BEST OPTION FOR BRIDGE FINANCING – EQUITY LINE
The best option for sellers who wish to buy before they sell is often just an equity line secured their current residence. Sellers can obtain equity lines from most major banks at no or minimal cost; the interest rates are relatively low; sellers incur no interest costs until they draw on the line; and banks lend up to 90% CLTV (Combined Loan to Value) in CA and up to 80% CLTV in Texas.
Sometimes bridge loans are the only option, particularly in Texas where equity line lending is much more restrictive. But, when equity lines are available, they are the best option to facilitate bridge financing.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167
