Here are some lessons learned about buying a house before selling your current home. I'll try to add more information as things happen, since we only just closed on the bridge loan today and haven't closed on the new house yet.
We obtained a bridge loan, which allows you to purchase a new home before selling your current home. It doesn't allow you to just sell your current home at your leisure. You need to put your current home on the market quickly after your offer is accepted on the new house.
The bridge loan pays off the mortgage on your current home. It is an interest-only loan, and the monthly payment is a similar amount to our current mortgage + taxes monthly payment. When we sell the current house, the proceeds (equity) from that house will be used to pay off the bridge loan in whole, and we get any leftover money. If we weren't going to use that money for home improvements on the new house, then there might be tax implications for the capital gain, because the price of our new house was much less than the sale price of our current house. When we signed the bridge loan, we also receive a check (which is basically some of our equity) that is used as the down payment on the new house. Starting in May (a month after closing on the new house), we will have a monthly mortgage payment on the new house and a monthly payment for the bridge loan; therefore, it's prudent to get our home sold quickly.
- schneid
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A bridge loan is one of the choices you have when you're investing in a house. But before availing of this option, make sure that you are ready to carry out the payment of terms. You have to understand the underlying terms and conditions.
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