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Bridge Loans (when your house hasn't sold)

Oct. 22, 2007
Question: I want to purchase a new home. My problem is my condo has not sold yet and I was going to use that money to buy my new house. Is there such a thing as loan against my home?

Answer: You have some options, all of which have pros and cons. You'll have to decide which works best for you:

1) Bridge Loan

You could consider a "bridge" or "swing" loan. Using your existing home as collateral, you take out a bridge loan for three months to five years to use as the down payment on your new home. Once you've purchased your new home, you sell your old home and pay off its mortgage as well as the bridge loan. These bridge loans are considered last ditch propositions because they cost 5 to 10 points more than a typical equity loan and they require pristine credit records and lots of cash to afford the monthly payments.

2) Equity Loan
If you have the equity, it's a lot less expensive to simply refinance, or get a second mortgage or other equity loan. Equity loans, however, could preclude you from landing another mortgage for a new home if you haven't sold the old home if the lender believes you are stretched too thin.

3) Contingency
To avoid another loan, you could sell your home with a contingency that says you must sell your old home before you can close on the new home. However, in a hot market, few sellers will be willing to accept such a contingency because there will be so many buyers without contingencies.

4) "Rent Back"
If you can't afford to own two homes and the contingency option isn't viable, a common move-up strategy is what's called a "rent-back". In a rent back you sell your existing home, but continue to live in it -- as a renter. As part of the sales contract, you agree to pay rent equal to the new buyer's mortgage payment, including principle, interest, taxes and insurance. The contracts are typically written for 30-days or less, with a 30-day or shorter notice of cancellation. The trick is to work hard to find a new home within the rent back period.

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Open House Cafe

Blog by Remy Chausse
Irvine, California

You can search for homes for sale anytime at www.GoFindRealEstate.com I'm a southern California real estate agent, working with buyers and sellers who often say ... I've never done this before ... I have no idea what I'm doing! ... and we get through it together, as we both look forward to a successful transaction! I created the Open House Cafe to provide a warm and cozy format with tips for buying a new home (or selling the existing home). Every day is open house day for you to ask your real estate questions!



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