Residential Bridge Loans: Buy Your Next Home Before Selling Your Current Home

Residential Bridge Loans are a highly effective tool to beat cash offers, and purchase your next home before selling your current home. Our bridge loan products have many advantages over other lenders' "imposter" bridge loans, which are really just two separate loans, structured for a single borrower, to close concurrently.

Some Info about the Bridge Loan program offered by Exception Lending:

1. No need to qualify for the purchase loan and your current loan at the same time. We just need a preapproval for any replacement financing you may need, once your current home is sold and you are ready to pay off the bridge loan. We can complete this preapproval as part of the bridge loan application process.
2. You may keep the mortgage on your current home until it sells. No requirement to pay off a low rate loan on your current residence to get a so-called "bridge loan" from another lender who insists on being in first position AND charging you origination fees to replace your low-rate current loan.
3. No appraisals on either the new home or current home, unless loan to value (LTV) is especially high, or there are condition issues with either property. In our program, we typically use AVM reports as a substitute for an appraisal, or in some cases may request a 1-page Broker Price Opinion (BPO) from a local Realtor Partner for our file.
4. Minimum FICO score of 700 for most loans
5. Most bridge loans we do are under $4,000,000--but we can go higher in some cases, with adequate reserves and/or a slightly lowered LTV.
6. No prepayment penalty. Interest payments are interest-only, prorated by the day. There is no minimum number of days you must keep the bridge loan. In fact, if your home sells 1 day after we fund the bridge loan, you may pay it off right away. Or just pay off a portion of it and refinance the remainder.
7. Establishes primary residence mortgage debt, to be eligible for the tax deduction on the first $750,000 of mortgage interest. Please consult with your CPA or tax preparer, and financial planner, to discuss the pros and cons of carrying a mortgage on your primary residence even if you have enough money to pay it off in full. The after-tax cost of mortgage interest may be lower than the market returns you could experience by reinvesting some of the proceeds of the sale of your home.
8. As an independent mortgage broker, we partner with multiple residential bridge lenders and can often fund purchases and rescue purchases that other lenders simply cannot close. Choose an experienced partner for this most important financial transaction.
9. We can partner with other mortgage professionals on your transaction. If you have a preapproval with your favorite mortgage lender, we can do the bridge loan, then coordinate with your lender to pay off the bridge loan with other financing. Why do we do this? Because we are collaborators. Mortgage professionals often refer business back and forth, based on the programs each of us offers. If you are a mortgage originator who needs a bridge loan for your client, please contact us for more info.

How do we calculate the bridge loan amount available?

We typically lend up to 75% of the combined value of the departing residence + the new residence, minus any existing loans.

So for instance, if your current home is worth $1,500,000 and you'd like to purchase a new home for $2,500,000, that's a total value of $4,000,000 of real estate.

$4,000,000 x 75% = $3,000,000

If you have a current mortgage of up to $500,000 on your current house, you could borrower the full purchase price of $2,500,000

$3,000,000

minus $500,000 existing mortgage

= $2,500,000 bridge loan available. 

If you have a higher current mortgage (plus any additional loans like a HELOC)

How long does it take?

Most residential bridge loans take around 21 days to close, due to consumer lending mandatory waiting periods (TRID) and the mandatory 3-day rescission period after signing, before funding, if your current primary residence is involved in the transaction.

Can you go any faster?

Yes, sometimes we may be allowed to waive some of the waiting periods IF you are in danger of losing your deposit. In these special circumstances, we will require the borrowers to sign an affadavit/statement for our loan file, along with supporting documentation (like a purchase contract which is due to expire and puts your deposit at risk). 

If you were in process with another lender for your purchase, and they are unable to do the loan for you because of appraisal or underwriting denial, please contact us right away. The bridge loan may be the tool you need to close that purchase instead of losing your deposit. In most cases, a 3% good faith deposit is far more to lose than the cost of the bridge financing--and you will be able to complete your purchase!

How much does it cost?
Our bridge loan pricing ranges from 2-3 points (percent of the loan amount), $2495 documents/underwriting, and typical third party closing costs. Rates vary, so please contact us for current pricing. 

It seems so expensive. Is it worth doing a bridge loan?
Most clients who decide to move forward with a bridge loan do it for the certainty it offers, the strategic advantage of having the option to write a "same as cash" noncontingent offer which is more likely to get accepted, and the financial advantages of not having to sell stocks, which might trigger capital gains liability and loss of market appreciation.

Additionally, buying before selling with a bridge loan means that you only move once, do not have to put your belongings in storage, and most importantly--you will not be selling your home before knowing whether or not you will find the home you want and be successful in a bidding war. Skipping the option to use a bridge loan could mean months in temporary housing, the additional labor and stress of moving twice, and the possibility of home prices increasing while you are waiting for the "right" house to come along. 

How do I get approved for a bridge loan?
You may begin an application here, but we recommend beginning with a consultation appointment or phone call. We look forward to talking with you.

* refer to the IRS website for current tax information, or consult your CPA, financial advisor, attorney or tax preparer for additional information. The information included in this article is meant to prompt discussion and is not meant to be a substitute for the advice of a licensed, experienced legal, tax, or financial professional.