Bridge Loan
Question: We are making a bridge loan secured by a first mortgage on the borrower's current home as well as the home that they are purchasing. The loan will pay off the current first mortgage on the existing home and finance the entire purchase price of the new house. It is a 6-month loan with interest only. Our examiner says this is rescindable but we want to treat it as a purchase money loan because the borrower is purchasing a new house.
Answer: What the borrower is doing with the loan proceeds doesn't change the fact that the loan will be secured by a lien on the borrower's current principle dwelling. When the loan involves both purchase money and the current dwelling, the roof-over-the-head rule trumps the purchase.
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 3, 3/05
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