In addition, there's typically a loan
origination fee on bridge loans based on
the amount of the loan. Each point is equal
to 1 percent of the loan amount.
Generally, a home equity loan is less
expensive than a bridge loan, but bridge
loans offer more benefits for some
borrowers. In addition, many lenders won't
lend on a home equity loan if the home is
on the market.
What Are the Risks and the
Rewards?
If you don't have the cash and your existing
home hasn't sold, you can fund the down
payment for the move-up home in one
of two common ways. You can finance a
bridge loan or take out a home equity loan
or home equity line of credit.
In either case, it might be safer and make
more financial sense to wait before buying
a home. Sell your existing home first. Ask
yourself what your next step will be if your
existing home doesn't sell for quite some
time. You'll be financially supporting two
residences.
If you're sure your home will sell or you
have a plan in place in case it doesn't, the
main advantage to a bridge loan is that
it allows you to avoid a contingent offer
along the lines of, "I'll buy your home if my
home sells."
Many sellers won't accept such a
contingent offer in a seller's market. Having
a bridge loan in place can make your move-
up offer more attractive.
Is a bridge loan right for you?
Whether you should get a bridge loan or
not depends on the market you're in.
As a general rule, it's a good gamble if your
home is situated in a hot seller's market,
where you are reasonably assured that it
will sell in a short time.
However, if you're in a buyer's market,
where your home might sit on the market
for months or years, it's much wiser to sell
your house and rent something for a short
time until you find another home you love.
Yes, that means you'll have to move twice—
once into your rental, then once again
after you buy a home—but that hassle will
pale in comparison to the stress you'll face
when the clock is ticking and you're making
mortgage payments on a bridge loan. So
make sure you're a good candidate before
you go out on this limb.
