Is there such a thing called a "bridge loan" ?

Question

I am looking into building a house. The problem is say I own a house worth x dollars and I owe less than the value of the house. I took out a home equity line of credit for the balance of the homes value. Now the problem is that land costs roughly the whole amount of the line of credit so if I buy the land I will have no money to start construction on the land I would now own. Is there a loan the banks can give me with next to no payments until the new house is built so I can sell the first to pay off the line of credit and the first mortgage?

Answer 1

A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Also known as "interim financing", "gap financing or a "swing loan".

As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In the case of an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner more flexibility.

Answer 2

Unless you have additional money to purchase a new home without selling your present home, you have to time the market to get a home to buy while looking out for a purchaser for your current one. This is a tricky situation if you are purchasing a home in an area where the demand is higher than your present location. Many sellers refuse to accept 'contingent' offers (where you buy their home depending on you selling your own) due to heavy demand in the area, as is evident by various prospective purchasers.

In this competitive scenario, a bridge loan is a useful tool that helps you to prevent forgoing a time sensitive home purchase. Though a bank or private lender will ultimately provide the bridge loan, it is advisable that you learn the basics before applying for the loan.

Answer 3

Bridge loans are real, but they do not come with a "next to nothing" payment. When you take a bridge loan, the lender will verify that you have sufficient income and finances to pay both your current obligations (mortgage and HELOC), as well as a minimum of monthly interest on any amount you take in the bridge loan.

If your assets, income, and FICO are sufficiently high to do so, you should speak to a lender about a bridge loan. If you are successful, the approach is to convert the bridge loan on your new house to a conventional mortgage when all transactions are completed (old house sold, new one completed.)

Answer 4

If you've maxed out the equity in the home already - you're done. The cheapest payments are interest only loans, but you still need to make payments & they must be secured by a hard assett. Sounds like you need a construction loan, but it's not happening un-secured.. By the way, the bridge loan mentioned in the 1st answer? Sorry. I own a finance company and it's not happening - If you want specifics, check my web site and call me.

Answer 5

Yes there is such a loan as a bridge loan. Talk to your mortage broker/advisor, and if you don't have one go to your bank and ask for one.

Answer 6

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