Bridge Loan Examples

Bridge Loan Examples – Bridge Loans for Home Purchase

Bridge loans are a short-term financing tools used to purchase property until permanent financing can be put into place or a property is sold. Bridge loans can be used in multiple different ways based on the needs of the homeowner. The bridge loan examples provided in this article will be specific to a residential bridge loan for a homeowner who intends to sell their current primary residence and purchase a new primary residence.

Bridge Loan Example 1 – Bridge Loan Against Existing Property

A homeowner owns their current property and has high amount of equity or 100% equity in the property. The homeowner is able to take out a bridge loan against their current property. The bridge loan provides the homeowner with enough funds to purchase the new home all cash.

Any existing loans against the current property would likely need to be refinanced by the bridge loan in order to maximize the amount of cash that can be pulled out of the property. In some situations, a bridge loan in the form of 2nd loan may be available which would allow for the existing 1st mortgage in remain on the property.

Once the homeowner purchases the new property and moves in, their previous property can be sold. The sale of property will automatically payoff the bridge loan.

Bridge Loan Example 2 – Bridge Loan Against New Property

A homeowner wishes to purchase a new property and has a sufficient down payment for the purchase. The homeowner contributes the down payment to escrow and the bridge loan provides the remaining balance for purchase. The bridge loan for the home purchase is secured against the new property being purchased.

Once the homeowner moves into the new property the previous property can be sold. The sales proceeds are then used to payoff the bridge loan on the new property.

Bridge Loan Example 3 – Double Bridge Loan Against Existing and New Property

A homeowner wants to purchase a new home but doesn’t have enough cash for a down payment. They have equity in their current home but not enough equity to purchase of the new property.

In this scenario the homeowner can obtain a bridge loan against their current property to pull out cash and then use these funds as the down payment for the purchase of the new property. An additional bridge loan would then be used to purchase the new property.

Once the new property is purchased, the previous property is sold which pays off the bridge loan against that property. The home owner can then use the sales proceeds to pay off or pay down the bridge loan secured against the new property. If needed, the borrower can then refinance the new property into a long-term traditional loan to pay off the bridge loan on the new property.

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Jeffrey A. Hensel

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