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A Bridge loan is used to "bridge" the closings between the purchase of a new property and the sale of the current property. A Bridge Loan becomes necessary when the one needs to purchase the new home prior obtaining the funds from the sale of the current home.

Mr. Jones is purchasing his new home and needs to close on May 1st, he will be selling his current home and closing on May 25th. The problem he has is that he needs the funds form the sale of his current home to purchase the new home and there is a 25 day gap between the closings. To solve his problem he will need to obtain a short term loan on his current homes equity to fund the new purchase. A bridge loan would accomplish this and be in the form of a lien on his current property which would be paid off apon its sale

Many banks do not offer bridge loans because of the low profit margin, and high costs associated with them. It will not be easy to find a lender willing to provide a Bridge Loan so if one can be avoided you will save significant hassles and headaches. Many borrowers utilize existing equity lines or loans to pull out equity. If this option is not available you may be able to convince your permanent financing lender to provide you with Bridge financing.

In a case where your lender will provide bridge financing they will most likely do so only in the following two scenarios:

1)You have a Purchase and Sales Agreement on both properties clearly showing the gap in closings. The purpose of this requirement is to ensure that you will not being carrying the costs of both houses and a Bridge Loan for an extended period of time thereby creating financial difficulties. If you do not have Agreements on both properties the lender will have to assume that you will have all three loans indefinitely in most cases making it virtually impossible to qualify for.

2)You have enough income to qualify for your new loan carrying both the Bridge Loan and the loan on the current home as debts. In this scenario the lender will not care if you ever sell the current home because they will be comfortable that you can afford the payments in that event.

No Benfits or detractors are listed for Bridge Loans. This is because generally a Bridge Loan is only used when it is the only option


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