Construction, bridge loans offer solutions

Great options for those building or in-between homes

Most people get the jitters when building a new home or buying a new house while trying to sell your old one. That's when some borrowers should consider a construction loan or a bridge loan.

STCU can't do everything, but we provide several financing options to meet most needs. Here's an overview of some of the options offered by STCU and other lenders:

Construction loans

Construction loans come in two types:

1. Construction-only loan. You pay closing costs for this loan, which usually has a six month to one-year term. During that term, you will usually pay only interest with loan balance becoming due at the end of the loan term. You then must have applied for a "permanent" mortgage that is then put into place, which means another set of closing costs.
   
2. "All-in-one" construction-to-permanent loan. STCU will combine your construction loan and permanent loan into one mortgage loan when construction begins. You apply for one loan and pay only one set of closing costs. However, you are committed to the mortgage rate and terms before the house is finished, so there's no changing your mind later.

Usually you would save money with an "all-in-one" construction-to-permanent loan because you pay closing costs only once. But be sure the permanent mortgage meets your needs; otherwise, you may be better off getting two separate loans.

Bridge loans

A bridge loan allows you to buy a new house without having sold your existing home. You could use a bridge loan in two ways:

1. Borrow enough to pay off your old mortgage and cover the down payment for your new home.
2. Leave your existing mortgage in place and borrow against the equity in your existing home to pay the down payment for your new house. STCU offers this option with our home equity line of credit.

A bridge loan typically is for a short term, say six months. With some lenders you will have some loan fees and costs and make no payments on the loan during that term. You pay off the accrued interest and the outstanding balance on your bridge loan after your old house sells. When originating a bridge loan through STCU's home equity line of credit, you will be required to make monthly payments.

A bridge loan typically lasts no longer than a year, so ask your lender if you will be allowed to extend your bridge loan if your home still hasn't sold at the end of the term.

If your home still hasn't sold by the deadline, you may have to pay all interest accrued and refinance to get another loan with fixed monthly payments to cover both the principal and interest. In the worst-case scenario, you could end up with three monthly payments: your old mortgage, your new mortgage, and your bridge loan.

That's one reason that bridge loans can be risky. You should use one only when there's a timing issue such as when you have a signed contract to sell your old house and you're waiting for the closing to get the funds to pay the down payment on your new home.

STCU can help you finance construction of your home or solve a timing problem with the closings for your old and new homes. Ask about the options we have available!