If you are currently coping with the prospect of purchasing a new home while selling your current residence, you may discover that you are having a difficult time negotiating the time between one closing and another. This is particularly a problem if the sale of your current property will not be final until after the date upon which you need to close on your new house. Maybe you are planning to move to a new school district and want your children to be able to start on time. Maybe you are buying from someone who absolutely needs to be out by a certain date. Regardless, it may be time to look into obtaining a bridge or swing loan.
A bridge loan is designed to finance a big real estate purchase for a period of 2 weeks to 3 years, though usually on the shorter side, until traditional lending can be obtained. It would be applicable in between closings because you would need the money for your down payment and closing costs even though you will not yet have access to the profits from the sale of your current home. This can feel like being stuck between a rock and a hard place, and a firm specializing in these temporary, transient loans can help.
It is important to note that a swing mortgage will have a significantly higher interest rate as compared to a regular mortgage. You can expect to pay between 12-15% interest, as well as several points. You will also not be able to finance as large of an amount as you would with a normal lending situation, since 80% of a residential property's appraised value is usually the maximum for this type of financing. Most of the time, you will also be required to enter into the loan with a very definite date by which it must be paid off. The shorter the time period, the more likely you will be able to get the financing you need.
However, you should also realize that swing mortgages are not going to be available to all people or for all properties. They are common in commercial real estate deals and have limited applications for residential ones. They are also not exceptionally common from regular banks. These banks must appeal to their investors and board of trustees, and because this type of financing situation involves a greatly increased risk, it can be a hard sell for conservative, fiscally-minded professionals. There are businesses that specialize in interim financing, though, and your realtor may be able to help you find what you need even if you are unable to turn something up yourself. A commercial lender is who you need to speak with, even if you plan on obtaining your final, permanent mortgage from a local bank.
Consider the amount of equity that you have in your current property, the duration for which you will need to be financed, and the amount. If they all add up well, you should have the good fortunate to find an affordable short-term loan to bridge the time between closings.
