Disclosures/Definition for Bridge Loan

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Question:

What defines a bridge loan and what disclosures does it require? I found some questions but they gave two different responses.

Answer:

Unless your state law defines "bridge loan" there is no Federal regulatory definition that I'm aware of.

But for what it's worth a bridge loan is generally considered a loan to bridge a gap between short term and permanent financing.

Borrowing the equity in the existing home on a short term for a down payment in order to obtain permanent financing for the new home. The short term loan will be paid when the current home is sold. Bridge loan.

Short term financing secured by existing home and new home. When the existing home is sold the short term loan will be paid down and the remaining balance will convert to permanent financing. Bridge loan.

Short term financing secured by existing home and new home. When the existing home is sold the short term loan will be paid in full. Not a bridge loan.

Bridge loans are exempt from RESPA and HMDA reporting however they are still subject to the applicable Reg Z provisions including the right to cancel.

First published on BankersOnline.com 6/6/11