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Can someone explain the pros and cons of this loan?
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A bridge loan is designed to help you bridge the double payments between the close of one property and the sale of your last property. They usually require exceptional credit. However, you would be hard pressed to find one in this market.
The biggest pro is that you can take the equity out of your home without having to pay interest until you sell it. Typically you'll have 6 months to sell your house. If you don't sell it within that time, the banks can issue a 6 month extension. Make sure you price your house really well, so it will sell quickly. This can be a con, if you don't sell your house in time. The interest rate is usually much higher (8-12%), which is obviously a con. Is there anyway you can do a home equity line to get the cash instead of a bridge?
These are a great way to play russian roullette. Can't sell your home but want to buy another? bridge loan! buy the other home, sit on some damn serious payments/debts and pray like hell your market doesn't keep sliding.
(as an alternative, if you have some brains, sell your existing home first. sign a six month lease somewhere and lowball all the homes you like.)
Using the equity in house 1 to buy house 2, with your fingers crossed every minute of every day hoping that house 1 sells.
Today the only way I'd leap into this extremely risky situation was if I had a very firm, rock solid offer on house 1 but closing was going to be later than the closing on house 2. "very firm, rock solid offers" often evaporate.
That said, we did use this approach in early 2008. The closing dates were separated by 3 weeks. We still wake up in cold sweats wondering what would have happened "if"....
The point may be moot...will your lender even give you a bridge loan? I have heard through the grapevine that these loans are pretty much shelved for now.
way of the dinosaur!
I think I got my answer! lol
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