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2008-01-23 4:27 PM

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Pro
5153
50001002525
Helena, MT
Subject: Bridge loans

With all the mortgage talk, I thought I'd post a question I have about bridge loans. My husband and I will be selling our house in Helena and buying one just outside of town for more land. There are a few places on the market right now that are super-great and super-cheap, but I think as the housing market heats back up after the holidays, they will move fast.

Helena's housing market has slowed down some, but is largely insulated from what's going on in the rest of the country (for more on that, read this ). Our current home will probably sell for close to the median home price, so it's not unaffordable or anything like that. I don't foresee it being that hard to sell.

Question is: our mortgage lady thinks we would qualify for a bridge loan so that we could buy one of those aforementioned cheap, great homes. But is doing so just crazy? My feeling is that we could afford the two mortgages for 4-6 months if we absolutely HAD to, but we'd have a hard time sustaining it for much longer than that. I'm scared to do it because my folks got stuck with 2 mortgages for 2 years (totally different scenario, expensive house in a very poor town rather than average house in an average town). So, what are people's feelings about these? Is it asking for trouble? Calculated risk?



Edited by kimj81 2008-01-23 4:29 PM


2008-01-23 9:16 PM
in reply to: #1172580

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Extreme Veteran
930
50010010010010025
Fort Worth, TX
Subject: RE: Bridge loans
I work as a developer and builder and feel qualified to answer this with an informed, outside opinion. A bridge loan is perfect for the person who needs to buy today, but can carry on tomorrow if something goes wrong. Often, it is used by people trying to buy a new home that will be built (giving them a fair amount of time before they'll move in) and the bridge loan allows them to buy at today's fair price rather than risk a higher price in the future. They then sell their existing home after, or right at, the time of taking possession of the new one. This almost parallels your scenario, but you'll be taking over your new home more immediately. Both scenarios carry risk if the people cannot carry the notes on both properties if required. The bridge loan can be nice in that you can avoid the heavy costs of having to schedule multiple closings (one for each property).

You are seeing great prices right now because the market is moving slowly - so too much supply and too little demand are creating fantastic buying opportunities. Conversely, you are going to be trying to market your home during this same time frame, which means in a pragmatic sense you should set yourself up to see a longer time to sell, unless you want to "unload" your home for little, or no, profit. If it doesn't sell fast - you spend through your cash flow to keep the note alive and protect yourself. If it sells for less than you wanted - you lose equity that might could have been protected by waiting for the market to improve before you sell, or not purchasing anything until you've gotten (closed) the deal you wanted on your home. Let's face it - you don't want to lose money, nor risk your credit and home ownership over trying to carry 2 notes when you don't have to - so it's probably better to wait.

Ahhh, but this Buyer's Market is TEMPTING! This is true. Perhaps you could investigate opportunities to leverage your risk as a buyer by leasing out your current home while you market it. This way you have income on the existing home coming in to carry you and lessen your risk. I have done this in a bad market in Houston and it gave me security. I found a tenant who would lease it at slightly less than the going market price (Incentive) and in return would sign a lease to evacuate within 30 days if I sold the home, unless the buyer wanted to extend a lease to the tenant. This is sometimes attractive to buyers on a property, who like you, want to buy a good deal today, but aren't ready to move yet. The lease/tenant offers them a reason to "Buy Now!" You won't be able to avoid having to close twice (closing costs are higher) but you also won't carry unnecessary risk.

In the end, it wouldn't matter what you paid for your new home/land if it caused you to face foreclosure on your other property and the many financial headaches that would create for you. My advice is protect yourself with extra caution in this market right now. I'm definitely not saying "don't buy" - just to be prudent. These are expensive stakes your playing with when it comes to houses and land.

2008-01-23 10:19 PM
in reply to: #1172580

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Pro
4909
20002000500100100100100
Hailey, ID
Subject: RE: Bridge loans

Just don't get a loan to purchase the Brookland Bridge.

 

Okay, bad joke, and I have nothing to add.   

2008-01-23 10:48 PM
in reply to: #1172580

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Master
2379
2000100100100252525
Alpharetta, GA
Subject: RE: Bridge loans

IMHO, calculated risk based upon personal situation coupled with YOUR assessment of the current market in YOUR area coupled with trusted, professional LOCAL opinion(s).

My wife and I used a bridge loan to purchase our current home.  Our situation was a bit different.  We were on the tail end of a significant run-up in prices of all properties in our part of town (we almost dbled our townhome value in 4 years), had just started a family, and wanted to move to a part of town where private schools were an option and public schools were excellent.  In our case, this meant the 'burbs.  After several months of looking, my wife found a relatively new home (7 years old) with lots of room to grow into, in a great n'hood with lots of children, and part of an award-winning school district.  We made an offer contingent upon the sale of our town house and started the bridge loan wheels turning "just in case."  Thank goodness we did so.

Prior to our contract expiring, another person made an offer on the house (what happened here is another very interesting story for another time), and our only option was to put up or lose what we both determined was the right home for us.  Between our bridge loan bank being excellent in every regard and finalizing things for us on a dime and our very savvy real estate agent, we pulled the rug out from under the counter-offer (which pissed off the homeowner big time, b/c we figure he received a larger offer than ours), finalized the contract, and closed soon thereafter.

We did carry two notes for a couple of months, but it was well worth it and if faced with the same scenario, I'd do it again in a heartbeat.

Good luck with your situation.

2008-01-24 7:07 AM
in reply to: #1172580

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Master
2946
200050010010010010025
Centennial, CO
Subject: RE: Bridge loans
My wife and I did get a bridge loan when we purchased our current house.  Luckily our house sold before we closed on the new home, so we were able to pay off the bridge loan immediately.  Why not just put your current house on the market and see what the interest is.  If you get a good offer, then you can set the parameters of when you move out based upon when you can close on a new property.  Then if you have to buy immediately, you can still push the close date off a little bit and give yourself a chance to close out your old house in the mean time.  At least make sure you give yourself the full opportunity to avoid ever paying on the bridge loan.
2008-01-24 7:48 AM
in reply to: #1172580

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Master
2356
20001001001002525
Fenton, MI
Subject: RE: Bridge loans

I wouldn't do it without a bigger plan.  Can you rent out your old or new home until the old one sells?  Can you sell the old one on land contract (you'd have to pay it off first, I think)?

 

I held onto my old house for 20 months and I finally sold it for ~$25k less than my original asking price.  It was a very modest home in an area with too many houses for sale. 



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