You've lived in your house for a while, but now you need a new one because your family is getting bigger. This is a good time to talk about bridge loans.
Between Here and There
When you want to move from one house to another, you have two main choices. The first choice is to sell your home, make sure the sale goes through, and then look for a new one. This is the safest choice by far.
The second choice is to both buy and sell at once. Most of the time, you try to close on a sale around the same time you close on a purchase. In theory, this lets you move from one home to the next without any trouble. This is a choice that could lead to a lot of problems. What happens if there are problems with the sale of your home, like if there are problems with the escrow or if the buyer can't get a loan? All of a sudden, you're thinking about having two homes. The bad thing is that you're probably using the money from the sale of your old home to pay for the new one. If you don't make a sale, you have no money and you can't sleep.
People often say that bridge loans are the answer to this problem. In theory, a lender could give you a loan to cover the time between selling one home and buying another. Even though this is what bridge loans are for, they should only be used as a last resort for a few reasons.
First, bridge loans are so expensive that it's ridiculous. The lender knows you're in a tough spot. The points and interest rates will shock you. The lender knows you are more likely to not pay back the loan, so you can expect to pay for the risk right away.
Your old home is the second problem with bridge loans. You will probably expect to sell your home quickly, but what if that doesn't happen? All of a sudden, you are paying for two homes. Few people can afford to make these kinds of payments, and you can run out of money quickly.
It can be hard to pay for a move from one house to another. Make sure you think about it a lot, or you could get a very bad surprise.
