Like the question of the chicken and the egg, homeowners planning to buy a new home must ask, “Which comes first?” Do you sell first, and then look frantically for the new home, or buy first and risk maintaining and financing two properties?
There’s more risk than just two mortgages. If you’re rushed to sell your home to purchase a new one, you might be forced to list at, or accept, a lower price than expected. If you’re pressed to buy a new home after selling your existing home, you may be forced into paying an unexpectedly higher price.
What is one to do? Build a bridge! Yes, there is a financing option called a “bridge loan,” so named because it “spans the gap” between your sale and your purchase.
One type of “bridge” lets you simultaneously pay off your existing mortgage and make a down payment on the new one. You make payments only on the new loan, and pay off the bridge loan when your old home sells.
Another kind of “bridge” allows you to borrow against the equity in your old home to make the down payment on the new home. Both “bridges” still mean two loans, but the costs may be offset as a result of having more time to get top dollar for the sale of your existing home. See you on the other side!