Sell or Buy First When Moving Up In Real Estate?
Filed Under Real Estate |
Sooner or later, you are going to need to sell your home. The reasons can range from the fact you are making more money and want something nicer to you are making less money and need something smaller.
While the reasons may differ, what does not is the rather fundamental question faced by each of us. Should we sell our home before buying a new one or just go ahead and make the purchase in anticipation of selling the old one?
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?
I have had personal experience with this situation. When growing up, my parents sold our home first. The subsequent purchase fell through. We ended up living out of boxes at the home of a family friend for seven weeks. Not fun!
What if you go in the opposite direction? Yeah, I will just buy a home and worry about my old one later. Only the boldest of us would try that in the current real estate market. I doubt many of us are that bold.
In this market, you will probably end up with two homes on your hand for a significant period of time. Even if you rent one out, it probably is not going to cover the cost. Throw in property taxes and it is not a pretty financial picture.
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.
The problem you face is how to get the equity from your old home to use as the down payment for the new one. A bridge loan solves this problem by acting as a short term bridge loan that effectively moves that equity.
The downside to a bridge loan has to do with time. Since they are only issued for three to five years, the lender makes money by charging high interest rates and points. They are, after all, supposed to be temporary loans.
The risk with these loans comes from an inability to sell your old home. The longer it takes, the more you pay in interest on the bridge loan. If it takes 10 months or so, it can really end up costing you big.
Bridge loans should not be viewed as a means to an end. These are not normal loans you hold for a long time. They are designed to bridge finance gaps and should never be used for any other purpose.
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