Bridge Financing: How to Own Two Houses Briefly

What if you're unable to perfectly dovetail the sale of one house with the purchase of another? You may own no houses for a time, in which case you'll have money in the bank and will need a temporary place to live. Or, you may own two houses at once. The following suggestions should help you deal with such juggling acts:

Borrow down payment money for the second house from family or friends. Point out that you need help for only a short period, and offer a competitive interest rate. Give the lender a promissory note, secured by a second mortgage (deed of trust) on your new house. Try to arrange it so that no monthly payments are due until your first house sells.

Get a bridge loan from a financial institution. If you have no other choice, you can borrow money from a bank or other lender to bridge the period between when you close on your new house and when you get your money from the sale of your old one. This simply amounts to getting a short-term home equity loan on your existing house, using it toward the down payment and closing costs on your new house, and repaying it when your first house sells.

Bridge loans can, however, be expensive -- interest rates are generally above the prime rate, and the loan lasts up to only six months. In addition, bridge financing is not easy to qualify for -- you have to have enough income to pay both mortgage payments indefinitely (using a maximum of 44% of your income to make the mortgage payments).