With Dual Loan Payment ScheduleBridge loans are most commonly reserved for real estate financing though they don't have to be. A bridge loan is usually a short term loan that provide funds for purchasing an asset (such as a home) when the cash-on-hand along with the primary loan is not enough to pay for the asset.
For example, if you currently have $50,000 cash and a home that you are selling for $400,000 for which there is a balance on the mortgage of $200,000 and you plan to buy a home for $800,000, you might be a candidate for a bridge loan.
If the lending institution for the new mortgage requires that you put a deposit of 20% down, $160,000, at closing, you will not have the cash if the closing has not taken place on your current home. This is where a bridge loan can be used.
$800,000 new home
-$50,000 cash on hand
-$640,000 mortgage available
$110,000 covered by bridge loan
The new home mortgage will be $640,000 (800,000 - 160,000 = 640,000). The selling price less the cash on hand and the mortgage money available leaves a short of $110,000. This is the amount covered by the bridge loan. A bridge loan is typically an interest only loan. This means you make only interest payments. The loan is also usually a short term loan offered at a higher interest rate. The idea is that once the first property is sold, the bridge loan will be paid off immediately from the $200,000 net proceeds from the sale of the first house.
That's the background. This calculator will calculate your total payment for the primary new mortgage and the interest only bridge loan payment. The bridge loan has no term for it is due when the closing occurs on the first house. The only thing you have to know about the bridge loan is the annual rate of interest you'll be charged.
"Anticipated Bridge Loan Term? (#)" — Enter number of months you anticipate needing a bridge loan. That is, how many months you think it will be until you close on the property you are selling. This value does not impact the bridge loan amount. It impacts the payment schedule and charts.
This calculator makes these assumptions:
1) payment for both loans are made monthly
2) the bridge loan is an interest only loan (payments never go toward principal)
your “Both Payments Total” calculation on the Bridge Loan calculator is subtracting rather than adding the payments.
Oh, that’s embarrassing. Thanks for taking the time to report it.
Currently this site is in beta testing but with any luck, it will be updated this weekend and be live (with this fixed) sometime on Monday, 2/22.
Do you need to add property taxes of both houses to this payment amount?
I hope I understand your question, because I don’t want to mislead you. If you own two properties you are responsible for the taxes on both properties. However, this calculator is about one property with 2 mortgages – the primary mortgage loan and the bridge loan. I would only add the property taxes for the one property that acts as the collateral for these two loans.
Does that answer your question?
Can you finance the cost of the new purchase in the bridge loan if there is enough equity.
I want to answer the question, but I don’t really understand it. Can you give me an example?
Normally, this is the use for a bridge loan.
Say you have a property that is going to sell for $300,000, and there is $150,000 mortgage balance on it.
You want to buy a property that costs $500,000
Your cash on hand is 20,000, but the mortgage company for the new home requires a 20% or $100,000 down payment.
You can buy the 2nd house with a new mortgage even though you don’t have the full $100,000 cash for the downpayment. Mortgage companies will provide a bridge loan for the $80,000 needed, because you’ll clear $150,000 when the first home goes to closing.
Of course these numbers do not take into account commissions, fees and other likely costs. The point is, the bridge loan uses the first property as collateral to provide cash to make the required down payment for the second. The bridge loan is paid back when the first property is sold.
We have a mortgage loan that is in a home modification loan process. It isn’t on our credit report, but the credit report is saying we have a mortgage. The mortgage company has been evaluating this home modification loan for several months always telling us that they are working on it. In the mean time they don’t even show the mortgage on our bank statement. They will not except payments while its in this “process”. We found a seller that will except a lease to own until we can repair our credit from this mess we are in now. I am anticipating a foreclosure on our residence now. And if not the bank putting it in foreclosure, we plan to. With this many months with out making a payment they will have a ridiculous payment they will expect us to pay a month. I’d rather concentrate on repairing my credit then have this stress all the time. The new home seller wants a 10,000 down payment to do this lease to own. Do you think a bridge loan would be the best? where would we go to otherwise with our current situation?
Sorry, but I’m not in a position to give financial advise. My role is to help users find the right calculator or to help with modeling a particular financial problem.
A bridge loan is used to provide cash that may be needed for making the down payment on a new purchase when there is an asset being sold that has not closed yet. Normally, if the asset is sold first, that raises the needed cash for the down payment on the new purchase.
I am trying to buy a home for 326,000.00. I have an existing mortgage of 185,000. I am looking a bridge loaned because I do not have any down payment money for the new home I want to purchase. If I did a bridge loan, and purchased the second home, would I have to be paying monthly for three loans?
1. First mortgage
2. Bridge Loan,
3. New second home purchase
I am confused about how this works???????
Thanks,
Judy
Hi, thanks for your question. It’s a good one. I’ve should have documented this better.
The short answer is “yes”, you would have 3 mortgages. But, you and then lender are free to negotiate. It’s possible that the balloon loan will just accrue the interest and everything that is due is collected at the closing of property that is the collateral for the balloon.
To keep the math simple, let’s assume the new home costs $100,000 (wouldn’t it be nice!). Assume you have nothing to put down, but you want to eventually put down 20% and have a normal mortgage of $80,000. Assume further that your current residence is worth $75,000 and the mortgage balance is $25,000. This means you have $50,000 equity in your current home – more than enough to cover the down payment ($20,000) you plan to give for the mortgage on the new property.
You find a lender to lend you the $20,000 for the down payment (this is the bridge loan), and they provide it at the closing of the home (probably will be the same lender that lends you the money for the nd mortgage). You now have 3 debts, the original mortgage, the 2nd mortgage on the new property and the smallish bridge loan for $20,000. When the current home is sold and goes to closing the issuer of the bridge loan has a lean on that property as collateral and will be demanding that bridge loan is paid in full with the proceeds of the sale.
Does this help?
We plan on selling our home and clear approx. 200,000.
Our new place will take about 110,000
With this much equity, will I still need to satisfy employment requirments, since I am retired?
Are these loans difficult to obtain?
It doesn’t sound as if you even need a bridge loan since I assume you’ll pay off the 2nd mortgage for $110,000 after you sell the 1st property. Since you have so much equity in your current home, I think you can probably get a home equity line of credit for $110,000 or so using the first home as collateral and when that is open, write a check to buy the 2nd home.
I purchased a home for 350, 000 cash no mortgage and im remodeling it I have spent 150,000 of my own money and need @ 250,000 to finish the remodel. my current home is worth 700,00 and I owe 240,00 on it now how would a bridge loan benefit me and what would my payments be with my current mortgage at 240k and the loan of 250k
the house im remodeling will be my primary residence and im listing my current home within the next couple weeks
I don’t think a bridge loan is what you need. I think that’s probably the wrong financial product, though offerings from lenders differ. Normally, I think of a bridge loan as a loan using the equity in one property to cover the cash downpayment requirements to take out a new mortgage on a second property. But you already own the second property.
Rather, I think what you should look into, is a homeowners equity line of credit. You have approximately $460,000 equity in your current home. You need, by your estimates another $250,000 to finish the renovations. You could apply for a $300,000 equity line of credit to cover the renovations. The advantage is, with a HELC, the lender normally issues checks that you can use to draw down on the credit line. Until you use it, you aren’t accuring interest and you only use the amount of credit you actually need. With a bridge loan, I think the lender will advance all the funds at one time. And if you need “only” 240,00, you’ll still pay interest on $250,000.
But I’m not a lender and as I say, products vary. I would appreciate hearing what route you actually take and if my thinking is correct.
I am selling my primary residence in Indiana, and want to purchase a home in Mass, primary residence has 50,000 in equity, and owe 180,000. The new property is 550,000 and I have no idea if this loan makes any sense for me. Homes near my primary are selling between 15-45 days. Any suggestions or recommendations, we also have roughly 50,000 in a savings account if absolutely needed. Thank you,
Frank
You didn’t mention how much the loan is for, but if you want to tap the equity in your existing home to use toward your down payment for the new home, then a bridge loan is one way to do it.
Oops, sorry. My PR original loan was 200,000, after 5 years we’ve paid it down to 180,000 and comps are around 250-270 range, and new property is 525,000, not sure how this loan works in terms of down payment. We also have if needed 75,000, but prefer not use unless necessary. I am not at all familiar with this loan product, and worry about potential “catches”.
I really appreciate your help,
Frank
If the new property is $525,000 and you want to put down 20%, then you need to have $105,000 cash (if I’m doing the math in my head correctly). Your cash-on-hand of $75,000 then comes up a bit short. How do you get the rest of the down payment? Some mortgage lenders will let you use the equity in your existing home, (in your case, using the low end to be conservative, that’s $70,00) as collateral for a second loan. This second loan is commonly called a bridge loan.
I’m not here to give financial advice, but rather to explain how the calculators work. So, please consider this to be just an example. I’m not suggesting this as something you should necessarily do.
What you could do, if you are going to close on the new property before selling the current property is see if the new mortgage lender will issue you a bridge loan (it could be complicated due to properties being in different states and the lender might not be licensed to do business in both states). Say you want to keep $25,000 cash available. You would then use $50,000 of your cash and get a bridge loan for $55,000 to have the down payment of $105,000 when you go to close on the new home.
When you sell the current home, the bridge loan issuer will be there with their hand out, demanding payment on the bridge loan because the collateral has been sold.
Again, I don’t mean to be giving advice, but I don’t think you have to be concerned with gotchas. You will have fees, and you should have a lawyer.
You can also talk with a local lender and ask them about a traditional home equity line of credit on the current property. Then when you need the down payment cash, you can write a check for the HELC account.
Hope this helps. More importantly, hope the calculator(s) here help.
Karl,
Yes, it has all been a great help. I was hoping to get by with 5 or 10% down, but if thats not an option then I will simply wait to sell my home, and then look into purchasing the next property when we have the money in hand.
Thank you for all of your help!
Frank
thank you for this informative article. I have put my home on the market and I am looking for a less expensive home in a nearby state. There has been very little interest shown in someone buying my home. I bought the present home during the housing boom and it is no longer worth anywhere near what I paid for it. I expect to net somewhere between 20k and 40k depending on the final sale price; and that is taking a considerable loss on the original purchase price and about 100k spent on major improvements. I have no option but to absorb that loss, and I am willing to do so. Currently I have more than enough cash on hand for a down payment on a new house, but what I don’t think I have is enough monthly income to pay two mortgages. Would a bridge loan be at all helpful to me? I am a recently widowed retired woman who is looking to reduce her monthly expenses and live closer to her family.
It does not sound like a bridge loan is what you need. A bridge loan is used for when a buyer has a property to sell and does not have the down payment money to buy the second property. That’s not the situation you are in from the sounds of it. But let me say, this site is not for dispensing financial advice. It is for explaining how the calculators work and how to do calculations. You should check elsewhere for an opinion how to handle the transaction.
Would a person need to also take out PMI (private mortgage insurance) if they were to finance a purchase 100% thru a bridge loan and first mortgage? Let’s say a home cost $600,000. Bridge loan for $400K, mortgage $200K.
100% is being financed. Would PMI be required? If so, any idea what PMI costs? Thanks… great, helpful website.
Hi Paula, I’m not qualified to answer your questions. Sorry. I think the answer may vary from lender to lend and/or state to state, but I don’t even know that for sure.
However, here’s an idea, if you find that PMI is required (and by the way, the Mortgage Calculator handles PMI, but you need to know the percentage being charged), why not see if you can get a home equity line of credit on the first home. They normally come with checks. Write a check for the $120,000 so you make the 20% down payment and then take out a traditional mortgage for $480,000?
The total debt would be the same.
I own my home outright and it is worth approximately $450K. I am downsizing to a new home for $350K and plan to sell my old home. My home is not yet on the market, but should sell quickly. I do not plan on taking a mortgage on the new home. Would you recommend a bridge loan to pay for the new home at $350K, which will be fulfilled when my house sells? Or should I pursue a HELOC? Could I get a HELOC for $350K? I supposed I have to state the funds are for renovations rather than a home purchase? I have substantial funds invested, but don’t want to pull them out for the purchase. Thank you for your advice!
Hi June, it would not be right for me to make specific recommendations about products or tactics.Though you’ve outlined your situtation, there are other things that should be considered, such as taxes. Also, products will differ from bank to bank and across state lines. I can tell you from personal experience that I have used a HELOC to pay (in part) my children’s college education. So an HELOC is not limited to home renovations.
You may also want to see if it is possible for you to borrow against your other investments. I only mention that as a possibility.
Generally speaking the questions asked here should be about how a calculator works, how to model a financial problem, or what calculator should be used for a particular calculation.
my amounts are really low compared to others so I wanted to ask…..
I’m buying a house for $105k. I owe $95k on the one I’m selling.
Using the calculator, it shows I’ll only be paying interest on the difference. $10k
That small amount for the bridge loan (interest) and then my normal house payment until I sell. Is that right? The bank is telling me around $400.
Purchase Price?: $110,000
Cash Available?: -0-
First Mortgage?: $95,000
First Interest Rate?: 6.5%
First Term? (Months) (#): 240
Bridge Loan Interest Rate?: 4.5%
Anticipated Bridge Loan Term? (#): 12
Bridge Loan: $10k
First Mortgage Payment: $708.29
Bridge Loan Payment: $37.50
Both Payments Total: $745.79
It’s 2 different banks.
Any help explaining would be great. Thanks so much!
The "First Mortgage" does not refer to the mortgage on the home you are selling. It refers to the first mortgage you are taking out on the house you are buying. The "bridge loan" then would be the second mortgage.
The money that would be available for the bridge loan would be (about) the difference in the value of the current home and what you currently owe. You can borrow that difference as the bridge loan on the new home.
Please ask if you have additional questions.
so if I pay cash for the difference – in my case $10,000, I would only have the new (1st) home mortgage. Why would I need a bridge loan? Wouldn’t I just be paying interest as if I took a normal 2nd loan on my current house?
Sorry, I’m not following you. There’s an important number missing.
What’s the market value of your current home?
If you are closing on the new home before you sell your current home, it looks to me as if you’ll need a bridge loan (or at least another source of cash) assuming you are getting conventional financing for the 2nd home. Here’s why:
New home at $105,000 requires 20% down for typical mortgage or $21,000. Where is the $21,000 coming from? You mention $0 cash available.
The $21,000 potentially can come from the equity you have in your current home. Equity is the difference between the value of the house and the amount you owe on it. Since you still owe $95,000 if the house value exceeds about $116,000, that difference, $21,000 can potentially be borrowed and used for the down payment on the new home. The $21,000 is the bridge loan. That loan will be paid back once you sell the current home. The current home is the collateral for the bridge loan, not the new home.
I think I understand. I was looking at it all wrong. I was looking at the worksheet above as 1st mortgage being my current home, not the new one.
If I pay the $21,000 down on the new home, all I will pay is the 1st mortgage on it. If I can only pay $10,000, my “bridge” will be $11,000. (also, I have approx. $40k in equity in my current home so all of that will go toward the bridge if I have it and the new home once I sell and it will be changed to a conventional loan)
Great!
And basically, that is correct. Assuming you put $21,000 cash down on the new home, you’ll only need to take out a conventional mortgage and no bridge loan is required (I’m speaking in general terms of course.Specifics vary lender to lender and borrower to borrower.) If you don’t have the $21,000 then you can use some of the $40,000 equity as collateral for a bridge loan which will be paid back when you sell the current home and then you’ll be left with the conventional mortgage on the second home. The sale of home 1 will pay off both the bridge loan and the mortgage on the current home. The remaining cash is yours!
Is this calculator appropriate if I want to use a bridge loan(hard money) to buy a property quckily, and then refinance in a few months after fix up?
ex: I purchase an assignable contract to buy house that closes in 7 days, so I have to use a hard money loan at 10% down LTC, 2 points @ 12%/yr, interest only payments for 6 months, no prepayment penalty.
But, I want to refinance, closing on first day of month 4, with 20% LTV of the after repair value which is tens of thousands higher than initial value. An option to roll construction costs into hard money loan amout would be a useful option.
Hi Andrew, it does not sound like it. The bridge loan calculator is for when two loans are taken out at the same time and then one loan is paid off when the collateral is sold that backed it – usually another property.
What are you trying to calculate? What not two are separate loans using the amortization calculator? That’s what they are, aren’t they? Two separate loan agreements?
If I misunderstood, let me know.
I think you’re right since they are sequential. However, if you made a two part calculator, you could calculate some important things, such as ROI, Cash-on-Cash ROI, and you could make a table showing worse scenarios, like if the repair took a few more months, or the repair costs were 50% higher, and a few worse and worse scenarios…. You would need some more inputs for holding costs, such as expected utilities, and property taxes.
In that case, please look at the Ultimate Financial Calculator. It should do what you want. Once on that page, scroll down and you’ll see a number of tutorials. Everyone should look at #1 for an overview of this calculator.
The calculator supports multiple loans on any date (the loans my overlap or not). It will also do analytics (under the "Settings" button) including IRR which is an ROR calculation.
Let me know how you make out or if you have any questions. I think you’ll find it to be quite flexible.