I am assuming you have exhausted all possibilities of borrowing from family,
friends or retirement accounts. The next best options are a swing loan from
a bank or a home equity loan on your current house.
If you have a contract of sale on your current house, many banks will make
a "swing" or "bridge" loan for the period between the closing
on your new house and the closing on your old house. I used a swing loan on
my last purchase, and it was relatively simple and hassle-free. While the rate
may be high, the interest payment won’t amount to much if the period is short.
Banks aren’t crazy about swing loans because they realize they are one-shot
affairs and they are unlikely to see the borrower again. For this reason, you
should go to the institution where you currently hold your deposit, whether
it is a commercial bank, savings and loan association or credit union. If they
gave you any flak, let them know (in a polite way) that as a customer, you expect
this service, and if you don’t get it you have lots of other choices as to where
you hold your account.
A home equity loan is likely to be more costly than a swing loan, although
the cost will be influenced greatly by the amount of equity you have in your
current property, and on how astute you are in your shopping. What you need
to avoid are points (an upfront charge expressed as a percent of the loan amount),
other upfront fees, and prepayment penalties. Bear in mind that on a 3-month
loan, you can afford to pay an interest rate up to 4 percentage points higher
to avoid paying a fee equal to 1% of the loan. Don’t tell the loan officer anymore
than you need to about how you intend to use the loan.
July 19, 1999
