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How Do I Use a Bridge Loan to Buy a House?

bridge loan how they work

by Shawn M. Grimsley

Bridge loans bridge the gap between selling and buying a house.

Financing a house purchase can be a lengthy and complicated process. This process is complicated further if you currently have a house that is on the market but are unable to sell it. While most buyers can wait for their current residences to sell, some buyers must relocate and purchase a new house. A bridge loan can provide a short-term solution.

Bridge Loans for Home Purchases

A bridge loan is a type of short-term loan offered by lenders that allows you to "bridge" the gap between the sale of your old residence and the long term financing of your new residence. A bridge loan may give you the funds necessary

to purchase and close on your new house. However, it's only a temporary solution. You'll need to obtain conventional mortgage financing once your old residence is sold.

Bride Loans and Real Estate Investment

Bridge Loan Details

Bridge loans differ from traditional real estate financing. The loan term is usually six months, but can be up to 12. Interest rates are higher than a fixed-rate mortgage loan, and closing costs can be as high as mortgage loans. Some bridge loans will pay off all liens on your old property, and any money left over is used as a down payment on the new home. Other bridge loans won't pay off liens, and the loan will be a junior mortgage on your old home.

Bridge Loan Risks and Alternatives

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