Bridge loans
Bridge loans cover the time period between when a buyer closes on a new mortgage and finalizes the sale of his previous home, at which time the bridge loan is paid off. This time period of owning both houses creates several problems for the buyer. Offers made with a contingency clause (contingent on the sale of the current house) are often turned down. Also, the buyer would be obligated on two mortgages, causing financial overburden repercussions.
Bridge loans are usually 1 year loans, structured to pay off the first house, provide for six months interest on the bridge loan and closing costs, and contribute toward the down payment on the new house. The bridge loan is paid off when the first house sells. If the house does not sell within the first six months, the buyer will make interest-only payments on the bridge loan.
