Bridge loans helping homebuyers trying to move up

First-time homebuyers have benefitted this year from falling home prices, historically low mortgage rates and $8,000 tax credits that expire Nov. 30.

But another kind of buyer — "move-up buyers" who must sell an existing home to finance the purchase of another, more expensive place — has suffered from slow-moving transactions among mid-priced homes like theirs, unable to predict when a home will sell or for how much and stalling their plans.

Hoping to spur more transactions among the move-up set, Windermere Real Estate last week began promoting 0 percent bridge loans to help them finance the purchase of a new home before they've sold their existing one.

Bridge loans are loans against the value of a home for sale, and borrowers use them to finance a new home purchase they wish to complete before they've sold their original place. Borrowers repay bridge loans with funds from their original home's sale.

Windermere says it's testing a 0 percent bridge loan to see if the offering motivates more transactions.

"We're back in the bridge-loan business," said Jill Wood, president at Windermere Real Estate in Seattle. "This is for a limited time, and our goal is to stimulate the market for the second-, third- or even fourth-time buyer."

Windermere is working with Vintage Loans to offer the program. Would-be buyers can borrow up to $100,000 at 0 percent interest for six months, or up to $200,000 for 0 percent interest for up to three months. Wood said buyers ineligible for the 0 percent bridge loan can apply for a traditional bridge loan at a 7.75 percent interest rate that the company began offering Sept. 1.

Golf Savings Bank and Washington Federal are also offering bridge loans locally. Golf Savings Bank Executive Vice President Donn Costa says rates at Golf Savings Bank are now about 8 percent and require a good credit rating.

Agents say that the middle and top tiers of the local real-estate market could certainly use a boost. In Seattle and close-in areas, the "move-up" market generally includes homes priced at $500,000 or higher, said Brent Lumley, an agent with Windermere's Oak Tree office. Such homes take three or four times longer to sell than homes below that price, he says.

"It does seem that a lot of buyers are kind of stuck," said Todd Williamson, an agent with John L. Scott Real Estate's Westwood office in West Seattle who currently represents a few listings priced at over $650,000. "Bridge loans are good in theory. But it also seems like you need equity to take advantage of them."

Williamson says that, rather than use bridge borrowing and wait on a sale, some sellers have become much more flexible about lowering prices. Indeed, he has one listing that's come down from $775,000 to $699,000 over the past six weeks.

Nationally, bridge loans play a role in less than 5 percent of all real-estate transactions, according to Keith Gumbinger, a vice president with HSH Associates, a mortgage research firm in Pompano Plains, N.J.

Craig Goebbel, a partner at Cascade Pacific Mortgage, says local bridge-loan usage is similar to national rates cited by HSH. Goebbel says he hasn't helped clients pursue bridge loans in recent months. And, when he has helped clients seek approval for such loans they've only needed to tap the financing in 15 percent of the time due to successful home sales.

A 0 percent bridge loan, however, might actually do some good, says Gumbinger.

"If this caters to the section of the market that's holding up the overall market, then it could help," he said. "Having access to more liberal financing terms always helps."