Buy First or Sell First? Part II

Previously, I addressed selling one home before purchasing another. But what do you do if your dream home pops into your life before your current home sells?

Obtain a bridge loan. This short-term loan bridges the financial gap that occurs when you purchase your new home before selling your current home. A bridge loan is not for everyone, but if you are financially strong, have considerable equity in your current home or a sizeable down payment for your new home, a bridge loan may be just the right ticket.

Obtain a home equity loan. If you have considerable equity in your home, most lenders will allow you to borrow up to 75% of your home's value--sometimes more. Usually, closing costs for a home equity loan are less than those for a bridge loan.

Rent your current home. If you rent your current home, you may be able to cover a portion, perhaps all, of your monthly mortgage payment for the rental home. Lenders normally consider 100% of your current mortgage payment as debt but only 75% of the rent as income (a "vacancy factor"). Rent your current home on a month-to-month lease with showing privileges so that you can continue to list your property for sale. Even if you need to accept a lower rent, find a tenant who will keep your home in top showing condition.

Are you pondering the "buy first or sell first" dilemma? Let's review all the options to find the one that works best for you.