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Dr. Don Taylor, CFA, Bankrate.com advice columnistBridging the gap from home to home

Dear Dr. Don,
I own property ($70,000) by Lake Talquin outside of Tallahassee. I also have a mortgaged home in Plantation, Fla., with equity in that home of over $100,000. There's also $80,000 in cash available that I will use to build a new home on the property. What are my options because the house we want our contractor estimates will be $250,000? I would expect a mortgage in the amount of $70,000 or $80,000, but I will need a bridge loan until my house is sold. I can't do that until my new house is finished.
-- Sharon Straddle


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Dear Sharon,
You have a host of options in arranging permanent financing for your new home. A construction to permanent financing package is likely to be the best choice because it only requires one real estate closing.

Look into the rate-lock options at closing. If you decide on a rate lock, you want a lock period that's long enough to be as certain as you can be that the home will be finished before the rate lock expires. The Bankrate feature, "Locking down a construction loan," explains the issues in greater depth.

If you have the income and credit rating to handle a $170,000 mortgage on the new place while continuing to make payments on the old place, you can finesse the bridge loan issue by making a lump-sum additional principal payment on the new loan after you sell the old house. You have to make sure that the loan allows the payment and that the payment won't trigger a prepayment penalty on the new mortgage.

You can't convert from construction financing to permanent financing until the home is finished. If you're going to wait until your new home is finished (or almost finished) before putting your existing home on the market, and you can't finesse the issue, then a bridge loan is a realistic solution. The Bankrate feature, "Securing the loan: Bridge loans," has more about bridge loans.

Don't leave yourself cash poor by putting all your available cash into the house. Make sure you have a reserve for emergencies, and don't forget to budget for furnishing and decorating your new home.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: May 19, 2006
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