They call it a bridge loan.
See, banks want your money. If you don’t have the money to give them, then they invent ways to give you the money so you can give it back to them. For example, take my house (seriously, you can buy it for $550,000). We have a tremendous amount of equity in it, which is a good thing. To the bank, though, this is a wasteful situation – money sitting fallow when it could be earning interest on their behalf. We find a house in Oregon that we want to buy. They bank says, based on your credit record, we’ll pre-approve you for $X. Unfortunately, the house is worth $Y…how can we meet that shortfall? With a downpayment, of course. Well, we won’t have the cash for a downpayment until we sell the house in California.
“No worries, my friend,” the banker tells us as he brushes aside sales brochures for bridges and beachfront property. “We have an answer for this. It’s called speculation.”
I become a little ill at ease. “Isn’t speculation illegal?”
“No, no, no,” he assures me. “That’s an old wive’s tale. Here’s what we’ll do…we’ll take the equity in your house, borrow against it (with a one-year time limit), pay your downpayment, then you can pay back the loan – with interest, or course – once you sell the house.”
“So, let me get this right. You will loan us money on profit that is strictly potential, not yet realized, for an amount that we HOPE we sell the house for?”
“More or less.”
“This is going to end up costing me money.”
“Well, you could lose house that you want to buy to another buyer. You must act, now.”
So, they make me and my wife into the latest suckers for their shell game of moving money from one column to another. Say, didn’t Enron get into trouble for that?
Anyhow, we went and hocked the San Diego house today for the purpose of paying the downpayment on the Cottage Grove house. We sign the big stack on Tuesday, up in Cottage Grove. The current owner will be out on the 11th, and we are moving our first load in during the weekend of the 15th. This is get very, very real.
Copyright 2005 by Greg Hubbard