Bridge Loans Can Help Save Money For Buyers In Between Florida Home Loans

The spring home-buying season is in full swing and many of the shoppers are families looking to upgrade to bigger and better homes. Because they also have to sell a house in order to make it work, these Florida real estate shoppers have a different set of issues to confront than first-time buyers. After all, affording the the new home is nearly impossible without selling the old one, and timing is tricky. What follows is a catch-22.

IF YOU SELL YOUR CURRENT HOUSE BEFORE BUYING …

Most buyers can’t afford to own two properties at once, but selling first means potentially having to move before officially closing on the new place. In the South Florida housing market and other hotspots, many buyers prefer to make certain their current home is sold before committing to a new one. The reasoning being that when they really have to find a place, they’ll search very hard.

“Many of my clients get their house under contract first and then rush to buy a new home. It takes less time to find a new home than to sell the old one,” said John Mudd, an agent with Exit Realty Suncoast in Tampa, Fla.

IF YOU BUY A HOUSE BEFORE SELLING …

It’s a scary prospect, but many people face the reality of they carrying the costs of owning both homes for a while. It can get extremely hard, from a financial perspective, when a buyer tries to buy a new home without having a contract on the old one.

“Under those circumstances, buyers have to be extra cautious in pricing the old home; they have to sell it as quickly as possible. They can’t overprice it. They should get at least some offers within 30 days. If they don’t, they have to be willing to look at the price point again,” said Austin Schuster, founder of NYC Living Realty in New York, N.Y.

In other words, you may have to be prepared to take less for the house to get a deal done.

DEALING WITH THE BALANCING ACT

Many buyers attempt contingency arrangements with sellers to make the new purchase conditional — upon the sale of the old one. If the buyers can’t sell their home within a period of time, the purchase is void. Sellers don’t like these such arrangements, of course, but are more likely to accept them in slower housing markets than hot ones. Regardless, asking to buy on a contingency hands the seller a bargaining chip, which can translate into paying more for the property.

There is also the bridge loan. No matter how you go about it, buying one home when you’re selling another will cost you money, so what you need to do is accept this, while still trying to find the best buy on a new home while your old one fetches the highest price the market will bear. Enter bridge loans, which give Florida home buyers the time to make the best financial decisions.

A bridge loan is, as its name suggests, a loan that spans the gap between the time you buy a new home and you sell the old one. There are two varieties:

1. You receive the money to pay off an existing Florida home loan and to pay down on the new house. You make no payments on the bridge loan, just on the new home. When you sell the old home, you pay off the bridge loan, including interest.
2. You keep your first mortgage and borrow against the home equity in the first home to make a down payment on the second. Let’s say your home is worth $220,000, the new one costs $300,000, and you owe $100,000 on your Florida home loan. That means you have equity of $120,000. You’re putting 20 percent down on the new home, which is $60,000. A bridge loan can be used to pay at least part of the down payment.

In both cases, you’re paying interest on two mortgages, but one is deferred until you sell. George Hanzimanolis, founder of Bankers First Mortgage Inc. and a vice president of the National Association of Mortgage Brokers, says that’s this option is not as costly as you might think.

“Bridge loan costs are reasonable, because banks feel secure; the loan is cross-collateralized by the two properties, so it shouldn’t cost any more. And they come from the same lender as the regular mortgage,” he said. “A bridge loan can pay off because borrowers are not forced to sell their homes short, at lower prices. They can wait for a better offer.”

This is certainly an option worth considering if you are going to be juggling two Florida home loans and don’t want to settle for a bad deal on either your new purchase or the sale of your current home. It’s going to cost money no matter what, so you have to think about what is best for you in the long run. For this inevitable Florida home loan circumstance, keep bridge loan options in mind.