Notes and Opinions from one of Arizona's Most Trusted Loan Teams

The term "bridge loan" is not one we hear often these days. However, one of our institutions has brought back a program that may be just perfect for today's market conditions. There may be others outside Arizona willing to do the same.

If a homeowner wants to purchase another home, he/she usually needs to sell the current home before he or she can move. They simply need the equity for a down payment. This can be difficult in a slow market like the one we are experiencing now.

Just to add more insult, the current prices have dropped enough to make some fabulous deals available. The flip side is you may get "creamed" if you drop the price on your house for a quick sale. You want a "fabulous" price when you are the buyer NOT the seller.

A bridge loan creates a "bridge" between the two properties. By blanketing both properties, the lender can finance 100% or more of the new purchase. Then, when your home sells, you pay down the bridge loan and re-cast the lower balance, get the lower payments, etc. By making sure that the final loan amount (after pay down) is at or below 80% of the new home's purchase price, you also avoid mortgage insurance, which has become increasingly expensive.

The obvious drawback is that you need to be able to service both loans if you have a mortgage on the old house. If you don't, the bridge loan becomes a snap. If you do, the balance on the existing mortgage becomes part of the formula used to determine how much equity you can apply toward the new home purchase.

If you can make this work in your circumstances, you can afford to wait for your current home to sell in a slow market. Or, you can wait for the market to recover enough to get a really good price for your current home. This is a classic "buy low, sell high" scenario that may be just the ticket you need to move up.

Jon Laird - VP Sterling Mortgage Corp.