Sell or Buy First When Moving Up In Real Estate?
As a homeowner, you undoubtedly are aware that you are going to have to sell your home at some point in time. Even if you plan to hold on to it for some time, life can throw things at you that require moving.
Although homeowners may get to the decision to sell from different paths, what does not change is the question of whether to sell or buy first. It is a bit of a catch-22 if you think through the issues you have to confront.
Look at the big picture. Assume you sell the old home first. Now what? Even if you buy immediately, you have to wait for escrow. What are you going to do for those 30 or so days? What about all your stuff that is packed up?
My parents did this once. They decided to sell first. We stuffed everything into moving trucks and then stayed with some family friends. The second deal fell apart because of the discovery of a bad roof and it ended up taking nearly two months to get into a new home.
Your other option is to go ahead and buy a new home regardless of the old one. This is not exactly a safe strategy in the current market when homes are being devalued and are not selling at any reasonable pace.
The end result is you end up with two homes on your hand. Assuming a bank even lets you do this, how are you possibly going to make the payments? Real estate property taxes alone will probably wipe you out.
The time gap issue is a tough one to deal with. This is all the more true in a market where the traditional financing market is in complete chaos. For many, the best answer is now the bridge loan.
A bridge loan is essentially a short term balloon loan. It allows you to take some of the equity from your first home and use it to finance the purchase of the second. This effectively allows you to make the down payment on the new home.
Is there any risk? We are talking about finance, so of course there is. Bridge loans are supposed to be temporary loans. They have terms that last at most five years. To make money, lenders charge more for them.
If you cannot sell the home within a reasonable time period, you are going to pay a lot for a bridge loan. If you can sell it in three to six months, you should be fine. Two to three years is going to have the opposite effect.
Are bridge loans for everyone? Of course, not. They are designed for very specific situations and serve the time gap financing niche well. If you are confident your home will sell, give them a good look.
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