Bridge / Swing Loans
A bridge (or swing) loan is an acceptable source of funds provided the following requirements are met:
- The bridge loan cannot be cross-collateralized against the new property.
- The lender must document the borrower’s ability to successfully carry the payments for the new home, the current home, the bridge loan, and other obligations.
Fannie Mae does not have a specified limitation on the term of bridge loans.
Treating the Resulting Contingent Liability
When a borrower obtains a bridge (or swing) loan, the funds from that loan can be used for closing on a new principal residence before the current residence is sold. This creates a contingent liability that must be considered part of the borrower’s recurring monthly debt obligations and included in the DTI ratio calculation.
Fannie Mae will waive this requirement and not require the debt to be included in the DTI ratio if the following documentation is provided:
- a fully executed sales contract for the current residence, and
- confirmation that any financing contingencies have been cleared.