If you are in the process of selling your house, what do you do if the perfect house comes onto the market that is perfect?  Do you sit and hope it is not sold before your house sells?  Do you cash in all IRA’s you have in an attempt to raise the down payment and closing cost money?  You have a few options, however you must act smartly, or you could end up without the new house of your dreams. 

You could submit a contingency contract, which means you will purchase the sellers property, contingent upon you selling your property.  This would mean that if you do not sell your house, then you are not purchasing the new house either.  This type of contract tends to be a bit of a hard sell, because most sellers want a better guarantee that they will sell their house.  You can see how this type of contract can be a very hard sell. 

Another option is to apply for a Bridge Loan.  This is a loan that borrows against your current house to cover the down payment and closing costs to purchase that perfect new home you have found.  The interest rates are a bit higher, and when your previous home sells, you are required to repay these loans once your house sells.  The lender secures the loan by placing a lien on both properties. 

Because of the high interest rates associated with these loans, they are only meant to be used for short-term use.  They are typically used for 1-6 months until a sale completes on the house the buyer is selling.  They do allow a buyer to go ahead and grab a good deal and fabulous house without the sale being complete in the meantime.  One major drawback to doing a bridge loan is that you must be able to qualify for both loan payments!  This means that sometimes they are hard to qualify for because of the high debt ratio that two mortgage payments can create. 

Another alternative to this is to use the old property as a rental, this way you are not forced to make the payments completely out of your pocket.  This way you are able to recover part of the money you are spending for mortgage payments.  If you have a justifiable reason it is usually easier to get a Bridge loan as well, the lender will not look as harshly at your debt ratio.  Investors are still going to be interested in your house, especially as a rental if it is already rented out.  This makes the package look much sweeter to an investor looking to recover some of their money quickly.