Home Equity Loan instead of Bridge Loans

Traditional bridge loans are appropriately named, because they are designed to help people bridge the financial gap between one home and another. For example, if you buy a new home before selling your old one, you can borrow money with a bridge loan to help cover such things as dual mortgage payments, the down payment on your new home, closing costs, moving expenses, and broker fees.

What's the catch? Interest rates and repayment installments on bridge loans aren't cheap, and can hit you deep in your pocket, just when you're trying to conserve money. One less costly alternative to borrowing a typical bridge loan is to use a home equity loan instead.

There's one major rule you should heed if you're thinking of taking this path: apply for your home equity loan BEFORE you put your house on the market. Most lenders won't let you take out a home equity loan if your property is listed on the MLS (Multiple Listing Service), so this strategy requires some proactive movement on your part. There are banks that will grant you a home equity loan after your house is listed, but they are few and far between.

Therefore, schedule your home equity loan closing before you list your property for sale. As soon as the home equity loan goes through, you can sock away the cash, and put your house on the market. Choose a loan that allows you to make monthly payments of interest only-and not principal-to improve your temporary cash flow situation.

If your house sells within a month or two, you may need to make only one small payment before it closes. At closing you'll pay off the home equity loan and be done with it. Essentially, you will have crossed the bridge before you even got to it.