Need to Move Right This Second? A Bridge Loan May Be the Answer

We don’t always get to choose when we move. An attractive job offer, or a need to be near a relative who needs care, can happen any time, and you may find yourself in a tough position. You need to sell your current home before buying a new one, and you don’t want to rent a place while waiting for it to sell. Because who wants to move twice?

What is a bridge loan?

A bridge loan, also known as an interim or swing loan, or wrap or gap financing, helps you bridge the time between owning your current home and your next home. These loans are associated with risks, for you and the lender, but may be the best solution in certain circumstances.

Let’s say you own a home worth $300,000. You still owe $100,000 on that home, and you have an interested buyer and a pending contract. The market in your new town is hot, and you’ve found the perfect place, listed at $275,000. You know it won’t stay on the market if you wait, and you’re fairly certain the pending contract on your first home will close. A bridge loan could cover the outstanding debt on your first home, the closing costs of the bridge loan, and a down payment on your new home.

Interest rates, as you may have guessed, are higher on these loans. Because you have a much shorter window to pay the loan, this may not affect your ultimate cost too much. If a bridge loan feels too risky to you, or if you don’t like the idea of adding to your current debt, there are other options.

What are the alternatives to a bridge loan?

Just wait

This probably isn’t what you want to hear, but never go into the purchase of a home with panic in your heart. That new house you love? Another one will come along.

Borrow against your 401k, if that’s allowed by your employer

This loan costs nothing more than the earnings you would have made during the time you’re using the cash to finance your new home. One risk is that, should you lose your job during the term of the loan, you could have to pay the money back in a short period of time to avoid penalties.

Take out a home equity line of credit on your first home

This is only an option, of course, if you have a large enough amount of equity in your home. You also may not be able to do this if your old home is listed for sale.

Secured bridge loan

If you have a binding contract on your old house, this may be an option.

Weigh your options, and don’t rush into anything. Moving to a new town and accepting a new position can be exciting and stressful; you may not want to add the burden of a riskier loan.