The ideal way to pay for a home is to acquire a home loan. But in most cases, we purchase homes that meet our need for space and the family size we may have (ie taking into consideration the number of children).
Another factor that governs our choice of homes is our financial ability to pay mortgage. The more expensive your choice of home, the more money you would need from a mortgage lender and subsequently the higher your monthly mortgage payments.
A newly married couple with no children can decide to buy a small home. But after a couple of years when they have children and as a result are in need of more rooms and space in the home, they can decide to look at their financial situation and if they can afford higher mortgage payment, they can opt for a mortgage loan.
This loan can help them buy a new home that is bigger and more spacious. If the couple has fully settled their old home loan, then it means that the home is fully theirs. They can choose to sell off the old home and use the proceeds from the sale to finance the purchase of a more spacious family home.
In most cases, the old home will cost far less than the new home. But the money from the sale of the old home can help to pay off part of the new mortgage. The couple could even use that money to take care of the down payment on the new loan. If this happens, the mortgage lender will reward the couple with a lower interest rate on the new mortgage. The money could also be used to settle closing cost on the new loan.
However, there are times that the homeowner may not have been able to sell off the old home but is under pressure to complete the process of securing the new mortgage for the purchase of the new family size home. There are reasons why a borrower may be in a hurry to close a loan. The main reason is the fact that the borrower may have obtained a drastically low interest rate from the mortgage lender and wants to lock in the rate before market forces send the rates up again.
There is a less common mortgage loan option for people in this sort of situation. This option is known as Mortgage Bridge Loan. The bridge loan allows the borrower to obtain a percentage of the old home’s value as loan that can be used to settle the closing cost and the down payment on the new loan. When the homeowner is finally able to sell off the old home, the bridge loan is then paid back.
For a situation where the homeowner has not finished paying the mortgage on the old home, a bridge loan is still possible. However, the mortgage lender will consider the income level of the borrower as well as monthly contributions towards both the old and new mortgage as a factor for determining the borrower’s eligibility for a bridge loan. This is so because, until the homeowner is able to sell the old home, he or she is responsible for the mortgage on that home.
You should demonstrate that you have the monetary power to pay two mortgages at least for as long as it will take to sell off the old home. Perhaps, this is one reason why bridge loans are ever so less popular these days when homeowners cannot even afford to pay mortgage on one home.