Bridge Loans: What are they? Who qualifies? How could a bridge loan help me?

Annette Smith

Annette Smith knows it's all about relationships. Whether you're a homeowner, navigating all the emotional and physical transitions of selling your house, or a buyer trying to get the best deal in a competitive environment, Annette offers both the expertise of a seasoned real estate agent and the genuine care of a good friend. It's no wonder that over 90% of her business comes from referrals. Over the years, she's also developed strong relationships with other local agents who know her reputation for professionalism, creative problem solving, and integrity-qualities that give her buyers an edge in multiple offer situations. Annette's passion for people and the community where she lives and works is evident. For 20 years she has not only been a top-performing realtor, but also an active member of the Menlo Park community-sponsoring the Summer Concert Series; serving on the board of directors for Adolescent Counseling services; shepherding her kids through the local schools, and greeting neighbors as she walks her dog, Max. As someone who has been through several boom and bust real estate cycles, Annette can give clear, calm advice to help her clients achieve their real estate goals in any economic climate. Annette makes her home in the Linfield Oaks neighborhood in Menlo Park with her husband, Cary, and their two daughters.

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Bridge: (brij) noun, 1. a connection between two adjacent elements, conditions, etc.

Loan: (lōn) noun, 1. a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

If you follow the real estate market, you might have heard the word “bridge loan” bantered about. You may have a general idea of what a bridge loan is, but you probably also have lots of questions.

To help you get a better understanding of this particular type of loan, I’ve asked Steve Papapietro*, Mortgage Advisor at Opes Advisors in Palo Alto to answer a few questions. Opes Advisors has developed a bridge loan program for their mortgage clients. All answers pertain to their program. Other lenders may have different programs with different qualifications, terms and rates.

Bridge Loans Q&A

Q: What is a bridge loan and why would someone need one?

A: A bridge loan bridges the financial gap between the current home that you own and the new home that you want to purchase. Bridge loans are used for down payments by people who want to purchase a home before their current home is sold, but who don’t have enough liquid funds to go through with the new purchase until they realize the equity in their current home by selling it.

Q: What are the terms?

A: A bridge loan is a short-term loan, ending when the borrowers close escrow on their current home, or six months, whichever comes first. The most amount of money that can be borrowed is $350,000 and the interest rate is prime rate (currently at 3.25%**) plus 3.5%. During the term of the bridge loan, payments are made only on the interest, not the principal.

Q: What are the qualification requirements?

A: Opes Advisors only makes bridge loans to clients who are financing their new mortgage with us. Recipients need a credit score of 700 or greater. They will also need to have the income to qualify for, not only the bridge loan debt, but the current housing debt (mortgage, taxes, insurance) and the new house debt (mortgage, taxes, insurance).

Q: Are there any exceptions?

A: Yes, the borrower will not need to qualify for the current home debt if all of the following are true:

The home is listed on the MLS.
The owners have an accepted offer from a buyer.
All contingencies have been removed.

Q: What types of properties are applicable for bridge loans?

A: Bridge loans are only made on California properties that are primary residences. They can be made for single-family homes and condos.

Q: Give us an example of a bridge loan and what the payments would be.

A: At today’s rates of 6.75%**, a bridge loan of $300,000 for three months would mean a monthly payment of $1,688 or a total of $5,064 over the three-month term of the loan.

Q: Who is the typical person who takes out a bridge loan?

A: Someone who has a high income and equity in their current home, but low cash reserves, and who wants to live in their current home until they purchase the next home.

Thanks, Steve!

As always, I’m here to help you in any way I can. Please contact me if I can answer any questions about whether bridge financing might be right for you.

* Steven Papapietro’s BRE license number is 00993899 and his NMLS license number is 633683.

** Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations. Opes Advisors is licensed by the CA Bureau of Real Estate 01458652, Oregon ML-4902, Washington CL-1178435 and NMLS 235584. Equal Opportunity Lender. Opes Advisors is a registered investment advisor with the Securities and Exchange Commission (SEC).