Bridge loans offer flexibility
special to the daily
Summit County, CO Colorado
Question: We want to purchase a new home and get ours onto the market. What happens if we find something we want to buy before we get our existing place sold?
Answer: That’s a good question and it is a situation that many people find themselves in as they are making the transition from one property to another. Imagine for a moment that you have found the perfect new home for your family. It’s in just the right neighborhood that you’ve always wanted to live in and you absolutely love it! The problem is you haven’t sold the home you own now.
You could make an offer on the new home contingent on selling your existing home first, however, most sellers are reluctant to except such an offer. If they do accept your offer, you will probably end up paying more for the property as a result. Having to make a contingent offer almost always results in a major loss of your negotiating power.
Writing a contingent offer may also cause you to become more desperate when trying to sell your first home.
You may accept an offer you wouldn’t normally have considered just because you don’t want to lose your new dream home.
This is where bridge loans can be a lifesaver. Bridge loans allow you to use the equity on your existing home as collateral on a new home loan. You then put your home on the market and when it sells or at the end of the loan term, you pay off the bridge loan.
Most lenders offer more flexible terms for bridge loans than for standard mortgage loans. To alleviate the financial burden of making double house payments, lenders will design more lenient repayment terms. Some will simply defer payment until your existing home sells. Other lenders will have you pay only interest payments, which are much lower, and then the principal would be due when the house is sold or at the end of the loan term.
Generally, most lenders set a maximum loan to value ratio of 75%. Meaning you can only borrow up to 75% of your homes value, minus the amount of the existing mortgage.
If you would like more information on bridge loans or any type of mortgage financing, give me a call. I’d be happy to get you started in the right direction.
We have an older rental property that we want to sell. We haven’t lived in it for years. It needs some work and want to sell it “as is”. What do you advise?
Think about the last time that you went to buy a used car. Were you more attracted to the dealerships that offered used car warranties or the places that advertised “as is”? In real estate, just like in the used car world, “as is” may suggest that there are defects the seller is either trying to hide or is unwilling to fix.
When a buyer hears a home is being listed “as is,” he is more wary of the property. Sellers often advertise their property this way because they think it will mean the end of their responsibility to the buyer. This is really not true. Sellers are obligated, by law, to disclose of any and all known defects to a buyer even if they say the home is “as is”.
You’ll save time, increase the chances of a sale, and probably net more dollars if you fix up the property as economically as possible – typically this would include general clean up and perhaps a coat of fresh paint throughout. Then, when you fill out the property disclosure, which will be given to your buyer, inform your new buyer about those items that are still problems in the property.
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