Using a HELOC to Bridge the Gap

Market dynamics make it a great time to find and purchase that dream home, as long as the purchase isn't contingent upon the sale of your existing one. If it is, use a HELOC to bridge the financial gap.

Sometimes, owning a home can make you feel like a circus clown-putting out flames, stumbling over toys, trying to catch falling knives. Add into the mix some turbulent market dynamics and a desire to purchase a new home, and the juggling act gets even more complex.

Sellers struggle, buyers win

Conditions in the real estate industry aren't what they used to be. Gone are the days when available homes were snapped up quickly by aggressive bidders, for amounts sometimes well above the asking price. If you're trying to sell your home these days, you know it isn't easy out there. Buyers are few in numbers and mortgage markets are tight. And there might be lots of other properties on the market, just like yours.

By the same token, those very same conditions could make it possible for you to get a new home that suits you far better than where you're living now. You may have even started looking already. You don't want to pass up the opportunity to land your dream home, but you're not sure how to manage the transition.

The temporary HELOC fix

One option worth considering is the use of a home equity line of credit (HELOC) to help you cover expenses on both properties until the current one sells. If you have equity in your first home, and you just need some extra liquidity to get by, a HELOC might be the easiest option. It's important that you apply for the HELOC before you list the property for sale-if the home is already on the market, your lender may prefer to put you in a more expensive bridge loan.

The HELOC has a few characteristics that make it suitable as a temporary liquidity solution. The closing costs are low, the paperwork is minimal, and the approval period is often short. Plus, you don't draw money unless you need it, which means that you won't pay interest on money you haven't spent. On the downside, HELOCs carry an adjustable interest rate, which is currently on the high side. But your payments will be interest-only, and that should help keep your outgoing cash flow under control.

Carrying two homes at once isn't ideal for your finances, but it can be managed temporarily. If your existing property is the only thing keeping you from buying the house of your dreams-the one that you've been eyeing for years-a HELOC may be the answer. You'll be juggling dual house payments and dual sets of related homeowner expenses, and may feel that you're walking on a tightrope. Make it easier on yourself by keeping your spending to a minimum until the old home sells and you can pay off the HELOC. Then you can celebrate by buying three rings and visiting the real circus.