How Does a Bridge Loan Work?

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A bridge loan is when someone is doing two loan transactions that are tying into each other, such as taking a loan from an existing home to make a down payment on a new home. Bridge transactions to avoid making unnecessary payments with help from a financial specialist in this free video on loans and money management.

Part of the Video Series: Loan Information
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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. The question posed to me today is how does a bridge loan work? Well, first off, let me define what a bridge loan is. A bridge loan is when you're basically doing two loan transactions that are tying in to each other. Now, an example of some of the bridge loans that were very popular a few years ago is that if someone had their house on the market, and they did not have a buyer for it, but then they saw their new dream home that was available for sale, they could literally take a bridge loan on their existing home, pull cash out for down payment, and then now they have the money they need to go ahead and purchase, put the down payment and purchase, their new home, and sit on the other one while they're waiting for a buyer to come along. One of the other features of the loan is that it would also hold back, maybe, six months or twelve months of payments in that bridge loan, so that the homeowner would not have to be making house payments on two different properties at the same time. So again, the way the bridge loan works is it's generally bridging, at least with a real estate transaction, it's bridging from one transaction to the other, and getting someone into a property if they haven't sold their prior home. My name is Matt McKillen, I'm with Innovative Financial Group.

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