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do you pay two mortgages with a bridge loan

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A bridge loan is a short-term loan that allows you to purchase a new home before selling your current one. By taking out a bridge loan, you can close the deal on your new house without waiting for your current home’s sale to go through. Learn how bridge loans work, including what they cost and the pros and cons, before deciding if this loan type is right for you. Key takeaways

Do You Pay Two Mortgages With a Bridge Loan?

A bridge loan allows homeowners to secure financing for a new house purchase before selling their existing property. This unique type of financing serves as a temporary bridge to cover the gap between the old and new mortgages.

Bridge loans come in handy when you find your dream home but need to sell your current place first, They provide an interim solution so you can move forward with a new property purchase

But bridge loans differ from conventional mortgages. You may end up making payments on two home loans at once. This guide covers everything you need to know, including:

  • What are bridge loans?
  • When are two mortgage payments required?
  • What are the pros and cons?
  • What alternatives exist?
  • FAQs on bridge loan dual payments

Keep reading to gain a full understanding of bridge loan dual mortgage payments.

What Are Bridge Loans?

A bridge loan provides short-term financing to qualified borrowers. It allows you to use your existing home’s equity to cover the down payment on a new residence.

You can obtain bridge loan funds quickly, often in as little as two weeks. The loans come with higher interest rates and shorter repayment terms than standard mortgages.

Typical bridge loan features include:

  • Loan duration of 3 to 12 months
  • Lending amounts from $10,000 up to over $1 million
  • Interest rates at 2% or more above prime rate
  • Loan-to-value ratios up to 80%
  • Repaid after the sale of your current home

Bridge loans require sufficient equity, typically at least 20%, in your current property. They also depend on a satisfactory credit score, debt-to-income ratio, and overall financial profile.

When Are Two Mortgage Payments Required?

Whether bridge loan borrowers end up paying two mortgages depends on the specific loan structure. There are two primary scenarios where simultaneous payments arise:

First-Mortgage Bridge Loan

With this option, your lender offers a new first mortgage loan. It pays off your existing mortgage and covers the down payment on your new home.

Until you sell the original property, you must continue paying the bridge loan. You’ll also start making payments on the new mortgage. So you temporarily have two mortgage payments.

Second-Mortgage Bridge Loan

In this case, the lender provides a second mortgage to fund your new home’s down payment. But your initial first mortgage loan remains.

So you pay your original mortgage, the bridge loan as a second mortgage, and the new mortgage on your recently purchased property. You cover three home loans at once.

The Pros and Cons of Bridge Loans

Bridge loans offer benefits like quick access to capital and the ability to buy a replacement home immediately. But there are some potential disadvantages to consider as well.

Pros

  • Access equity without waiting for a home sale
  • Make non-contingent offers on new properties
  • Obtain funds quickly with a streamlined process
  • Defer payments until after closing on new home
  • Pay interest-only on some bridge loans initially

Cons

  • Higher costs than conventional mortgages
  • Risk of foreclosure if current home doesn’t sell
  • Stress of managing multiple mortgage payments
  • Tight repayment terms with balloon payments
  • Limited protections if sale of current home falls through

Bridge Loan Alternatives

Other forms of financing provide alternatives to bridge loans. They may better suit your circumstances and goals.

Home Equity Loan

Home equity loans offer fixed rates and long repayment terms using your home as collateral. Interest rates can be lower than bridge loans. But you may still end up with two mortgages temporarily.

Home Equity Line of Credit (HELOC)

A HELOC provides a revolving credit line secured by your home’s equity. It offers flexibility, potential tax deductions, and low or no closing costs. HELOC rates are also typically below bridge loan rates.

80/10/10 Piggyback Loan

This financing option requires just 10% down by splitting the mortgage into an 80% first lien and 10% second lien. It avoids private mortgage insurance while providing bridge loan benefits.

Personal Loans

Qualified consumers can obtain a personal loan with fixed rates and terms tailored to their needs. It provides an unsecured alternative to a bridge loan.

FAQs on Bridge Loan Dual Payments

Do you still have questions about managing two mortgage payments with a bridge loan? Here are answers to some frequently asked questions:

How long will I pay two mortgages?

You can expect to pay two mortgages for the bridge loan’s duration, typically lasting around 3 to 12 months. It depends on how quickly you can finalize the sale of your original property.

What if I can’t sell my current home?

In the worst case, you may get stuck paying two mortgages indefinitely. If you ultimately can’t sell your home for enough to repay the bridge loan, the lender may foreclose on the property.

How can I handle two mortgage payments?

Making two home loan payments can put significant financial strain on households. Reduce other expenses, tap into savings, or discuss loan modifications to make the dual payments more affordable.

Should I take out a bridge loan?

Bridge loans allow you to capitalize on real estate opportunities. But the risks and costs mean they aren’t right for everyone. Seek professional advice to determine if a bridge loan aligns with your overall financial objectives.

The Takeaway – You May Pay Two Mortgages

In most cases, bridge loan borrowers end up responsible for at least two mortgages until they sell their original home. While these specialty loans provide interim financing, they also come with more risks and expenses compared to alternatives. Assess your entire financial situation before committing to a bridge loan and dual mortgage payments.

do you pay two mortgages with a bridge loan

Bridge loan requirements

Before applying for a bridge loan, check how you measure up against the following key requirements.

Cons

  • You may pay a higher interest rate: Due to their short-term, high-risk nature, bridge loans tend to have higher interest rates than conventional mortgage loans.
  • You’ll need to pay closing costs: Closing costs on a bridge loan may include home appraisal and origination fees, which can total up to 3% of the loan amount.
  • You’ll have to manage multiple payments: Since you’ll own two houses at once, managing two mortgage payments, even temporarily, can be challenging.
  • You’ll need at least 20% home equity: Many bridge loan lenders require borrowers to have a minimum of 20% equity in their current home.
  • Your mortgage options may be limited: Some bridge loan companies only offer bridge loans to borrowers who also get a purchase mortgage through them, which can limit your ability to shop around for a loan for your new home.

Bridge Loans | Buy Before You Sell

FAQ

Is a bridge loan a second mortgage?

Second Mortgage for Down Payment

Some borrowers take a bridge loan as a second mortgage to fund the down payment on a new home while waiting to sell their current property.

What are the cons of a bridge loan?

Potential Drawbacks of Using Bridge Loans

Higher interest rates and fees. Bridge loans typically have higher rates, origination fees, and closing costs than lower-risk long-term loans. Short repayment period. Borrowers often need to repay the loan within just a few months to a year, which can create financial pressure.

How does a bridge payment work?

Terms: With a bridge loan, you’ll usually make interest-only payments to start and then owe a balloon payment at the end of the loan term.5 days ago

Does a bridge loan pay off your current mortgage?

Bridge loans are typically secured by your current home and are intended to be repaid quickly—often within 6 to 12 months. The funds can be used to pay off an existing mortgage and apply the remaining balance toward the new home’s purchase.

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