The Word on the FHA Short Term Bridge Loan

The Word on the FHA Short Term Bridge Loan

The term "bridge loan" used to be affiliated with connecting two properties in the days of old. A borrower would refinance two properties at the same time in order to get what they need. This "bridge loan" is not what we are talking about, but an FHA short term bridge loan. The short term bridge loan through FHA is to bridge the gap between one mortgage loan to another. This can be used when a borrower is in one home, but buying another and doesn't yet have the proceeds from the sale of their current property to use as a souce of down payment.

In 2009, the first time home buyer tax credit was born, and motivated many who didn't think they would get into a home, motivated to start looking and saving. Even if families weren't close to buying within a month or so, they realized what they had to do to prepare for such a commitment. FHA developed a plan that was somewhat secretive in its beginning stages, but was designed to help use the FHA short term bridge loan upfront to get into the home when struggling for down payment funds.

The 2009 first time homebuyer tax credit was to be 10% of the purchase price of the home, and the maximum amount would be $8,000, so depending on the purchase price the amount could be less. For those who were applying for an FHA mortgage, the entire amount could be used at closing. Many consumers were left wondering how in the world they were going to get their hands on this money when they had not even filed their taxes yet.

Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development said that FHA lenders and approved non-profit groups would be given the authority to issue a short-term "bridge loans". This money would be granted until the borrower received their tax return, then they would need to pay it back. This was to aid those who had little for closing costs to be able to start the process of buying a house without any financial burden on putting down the money they needed. With FHA, you only need to put 3.5% down, and you can get up to 6% seller concessions when buying a home, but many were still struggling to come up with that 3.5% due to tough economic times.

Previous tax credits required that you had to pay them back, with the 2009 tax credit, you don't have to do that, but you are capped at $8,000. The loan amount does not affect the tax credit, but it is based on 10% of the purchase price of the home. The other benefit with the 2009 tax credit is that it didn't require you to pay back the FHA short term bridge loan, with the proceeds out of your tax credit.

My best advice as always is to enter into this with caution, because once you agree to the FHA short term bridge loan, it is binding. Be absolutely sure that this is what you want to do. Buying a home is the dream for many Americans, but don't rush into anything, and educate yourself.

For more information on this and other FHA programs, please visit www.fhaloansnow.net.

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