What is a Bridge Loan, and How Does it Work?
When you are looking for a home, timing is important. A bridge loan gives you the freedom to be able to purchase a new home without waiting for your current home to sell, which can be a key differentiator in competitive housing markets. Using a bridge loan helps you make a non-contingent offer on a new home, making your bid more attractive to sellers.
How does a Bridge Loan work?
A bridge loan uses the equity in your current home as a down payment on your new (owner-occupied) home. While similar to a home equity line of credit using your current home as collateral, a bridge loan is a shorter term, with payoff expected after 12 months.
Features of Third Federal Bridge Loan
- Third Federal will lend up to 80% of your current home’s value (minus your first mortgage), with a maximum loan amount of $300,000.
- No payments are required until either your home sells, or the loan reaches one year maturity.
- After 12 months, your payoff will consist of the principal balance plus accrued interest (interest is calculated on a daily basis). However, you may make payments on this loan at any time.
- Loan approval is contingent on Third Federal financing your new home.
Additional Options
- You may use the bridge loan funds to pay off your existing mortgage, allowing you to eliminate that payment so you only manage one while you transition to your new home.
- Second mortgages, or home equity lines of credit may also be paid off with proceeds from the bridge loan.
