If a bridge loan is needed to purchase a new house before the closing on the old house can any lender at all provide the bridge loan or must it be provided by the mortgage holder of the new house?

Answer

The procedure may vary according to state regulations, but in every venue that I know about, and in principle, a bridge mortgage, if one is granted, is provided only by the lender that is financing the new home.

The bridge (or "swing") mortgage takes equity from the old house that is for sale and applies the funds to the closing costs of the new house: the buyer never sees the money and has no other access to it. The old house is collateral for the loan.

Lenders love the bridge mortgage, because the interest rates are high and the loans are guaranteed by the equity in the old house. But for the borrower -- those who use a bridge loan to complete a deal on a new house before the old house has closed -- the bridge is not attractive: it is a costly way to borrow money, and worse than that, if the sale of the old house falls through, then the borrower is responsible for two mortgages until the old house is sold.

In place of a bridge mortgage, a home owner can usually borrow the closing costs more cheaply and safely in other ways; against a 401K, for example. But the real choice is to refrain from committing to a new obligation until the old obligation is completely discharged: signed and sealed. Many people don't want to delay gratification and decide to take a chance so that they won't lose their "dream home." But the risk is that they may be saddled with two homes, one a new dream, the other an old nightmare.

First answer by Spelvin. Last edit by Spelvin. Contributor trust: 256 [recommend contributor]. Question popularity: 17 [recommend question]