What is bridge financing?

The Intelligencer, July, 2010 by Mary Lou Erk

Most people that buy a property have a property to sell. If the first home is sold, then the sellers are free to buy another home. When their dream home comes on the market and their current home is not yet sold, interim financing or a bridge loan may be in order. A bridge loan is a short-term loan secured against the property that is being sold. Most bridge loans are for six months, so a buyer may need an extension clause in the loan contract for a longer term. To qualify for the bridge, the buyer must be able to satisfy the lender that he/she can handle the temporary financial burden of two homes. Most lenders wont grant a bridge loan for the entire amount of the home equity. Generally the amount of the bridge loan plus the balance on the home mortgage cannot exceed 80% of the value of the home. If there are any other mortgages on the home, it may be difficult to find a lender willing to grant a bridge loan. The best position for the seller is to sell the current home first and have a full commitment on that home before purchasing another.