A Bridge Loan can be an effective solution if you need to pull equity out of an existing property to purchase a new property. It can especially come in handy if you suddenly come across the perfect home to buy – but you have not yet sold your existing home (and you know that your income is likely insufficient to cover the mortgage payments on two properties at the same time).

Provided your credit score is at least 680, up to 75% of the value of your current, to-be-sold home may be extended to you via a Bridge Loan in one advance.  The Bridge Loan proceeds would need to be used to fully repay your existing mortgage balance, but you can also use any leftover loan proceeds towards the down payment on your to-be-purchased home.  The Bridge Loan structure allows you to make an offer on a new property, which is not contingent on the sale of your existing property.

Bridge Loans are generally due in 12 months, which is ample time to sell your existing property. No mortgage payments are required to be made on the Bridge Loan until your property is sold (at which time the principal would be paid back plus accrued interest). And, because there are no monthly Bridge Loan payment requirements, Bridge Loan obligations are not counted towards the lender’s debt-to-income ratio calculation. The same lender will then separately advance you a permanent loan of up to 80% of the value of your to-be-purchased primary residence.

One cold and snowy night, Bob Cratchit was wondering how he could purchase a new home for his family by Christmas.  Not just any home, but one that would surely be perfect for Tiny Tim and his wife – a dream come true.

Their current home was fine, but space was cramped now – and the heater and roof would likely need to be replaced within the next few years.

“I could sell my home and use the net proceeds towards the down payment of our new home”, he thought, “but I need more time to get our current home ready for sale.” “And, how can I afford mortgage payments on two homes?”  It didn’t seem possible.

Would his cruel boss, Ebenezer Scrooge, give him a bonus to make this work?  As expected, Cratchit was laughed out of Scrooge’s office.  Discouraged and dejected, Cratchit gave up.

But Scrooge, after being visited that night by Christmas ghosts, miraculously agreed the next day to simultaneously lend Cratchit two loans: 75% and 80% of the values of his current and dream home, respectively!  Cratchit, having just a 680 credit score, could now use Scrooge’s Bridge Loan proceeds towards the down payment on the new home.  Scrooge’s 12-month Bridge Loan term would provide ample time for Cratchit to sell his existing property.  And, Scrooge waived all Bridge Loan payments until Cratchit sold his current home – when the principal would be paid back plus accrued interest. 

Cratchit made an offer on his dream home the next day!