The Departing Residence in a Bridge Loan Transaction
When a California homeowner uses a bridge loan to buy a new home before selling their current one, the home they are leaving is called the departing residence. This property plays two key roles in the transaction: it is typically the collateral the lender uses to secure the bridge loan, and its eventual sale is the primary exit strategy that will pay off the loan.
The lender evaluates the departing residence carefully because its marketability and value determine whether the loan can be repaid. A property in a desirable location with strong buyer demand makes a stronger case for approval than a rural property with a limited buyer pool.
If the departing residence is worth $900,000 and has an existing mortgage of $350,000, the net equity is $550,000. At 65% LTV, the maximum total debt against the property is $585,000 (65% x $900,000). Subtracting the existing $350,000 mortgage, the maximum bridge loan against this property is approximately $235,000.
When the Departing Residence Has an Existing Mortgage
Most borrowers still carry a mortgage on their departing residence. The bridge loan is sized within the LTV limit after accounting for the existing first mortgage. The bridge loan typically sits in second position behind the first mortgage, which affects the interest rate and underwriting requirements.
Carrying Two Properties During the Bridge Period
During the bridge loan term, the borrower owns both the new home and the departing residence. Monthly payments are due on both properties. This is manageable for most borrowers for the typical 60 to 90 day bridge period, but it is important to plan for this carrying cost when evaluating whether a bridge loan makes financial sense.