Many sellers will turn down any offer they receive that has a contingency clause (for example, a clause that states the offer is contingent on the buyers selling their own house). This can be problematic for the buyer who does indeed have a house to sell.

To stay competitive in a tight market, some buyers therefore make the decision of securing a bridge loan (also known as a swing loan or bridge financing). The bridge loan covers the gap between the time a buyer closes on a new home and the time in which his/her old house sells. It is more common in a seller’s market than in a buyer’s market.

The loan can amount up to 80% of the property’s market value and no payments on the loan are expected for about three to four months.

A bridge loan is typically structured as a one year loan. The bridge loan pays off the buyer’s first house with the remaining funds, minus closing costs and six month’s of interest, going toward the down payment for the new house.

If after six months the first house has not sold, the buyer will begin making interest-only payments on the bridge loan. When the first house sells, the bridge loan is paid-off. If the old house sells within the first six months, any unearned interest payments will be credited to the buyer.

If the home does not sell within the term of the loan the seller has the right to renegotiate the terms.

This is the typical bridge loan scenario for most buyers. In some cases a buyer may qualify for a bridge loan that simply adds the cost of their new house to their current debt.
The advantage of a bridge loan is that it allows you to make a competitive offer on a house without a contingency clause. The disadvantage of a bridge loan is that it is usually a short-term loan (1 year or less) with high interest rates.

With my knowledge of local market conditions, I, at Prudential, can help you determine whether a bridge loan is your best option for making a competitive offer. Let's get together to talk about your options.