Real Estate the Ramsey Way - This Is Why You Should Avoid Bridge Loans

Episode Date: June 16, 2025

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate home ownership with confidence. We're going to go straight to the phone lines where we have Brenda in Dallas, Texas. Brenda, how can we help today? Hi, I'm calling because in October of last year, my husband and I made the dumb, dumb, dumb decision of taking out a bridge loan. to purchase a property. And it was with the idea that we would sell our previous property and pay off the loan, restructure the loan, and everything would be great.

But we haven't been able to sell our old property, and the loan is due on June 1st. Interest has accrued, like nobody's business. Oh, man. What was the interest rate, and then what was the amount? So the total, they combined both properties, came out, to 1.437 at 10.99. 10.99?

Yeah. So apparently bridge loans, they explained to us, are always high interest like this. They're anywhere between 8 and 12. Man. They even explained it to you, and you guys said, sign us up. Let's do it. Well, that's how confident we were that we could sell our old house. Why isn't it selling?

That's the million dollar question. We've knocked it, you know, the price down a couple of times now. We are technically under contract, but our buyers cannot seem to lock in a buyer themselves. And when they keep telling us, the market is just so weird. It's just such a bad time. Right now, it's a buyer's market, not a sellers. Yes. So, but shoot straight with, like, level with this.

If you had to say, here's what I really think the problem is, because I have a feeling that, you know, you can usually look at a situation and go, even though I don't like this, this is probably what's going on. What do you think is probably going on, whether you like it or not? I mean, I think we listed too high. Okay.

But then again, we were going off of the comparables, you know, the appraisal report. And, you know, I don't know. I think the market over here, the people that can afford that price tag, they're looking for way more square foot. So while that house is very nice, because it's remodeled, we poured a lot of money and swan tears into it.

It's a two-acre property. It's got, you know, that country feel with Starbucks five minutes away, all the amenities. But I think people are looking for more palatial homes in that area because we're surrounded by those types of homes. Got it, got it. And ours is an original. There's a lot of new development out here, a lot of incentives. So what are you hoping it sells for at this point? We have it at 995, and like I said, we've been with this under contract with a contingency offer for 40 days already.

I mean, because they're in the same situation. They're making sure their deal goes through, right? So that has the potential to have a major domino effect. And I would not say, and George, you know, chime in, just that the fact that it's taking 40 days, I wouldn't necessarily say that, oh, my gosh, this thing's not going to happen. Because the truth is, yeah, your buyer. are now waiting for their contingent. You know what I'm saying?

Somebody might have made a contingent offer on their home. So this does have some issues. Now, what you could ask is if your realtor can say, hey, if we go under contract with someone, is there a way to say we're also open to other offers until theirs and then put a stop loss on it? You see what I'm saying? And say, hey.

Technically, we can. But most of the time people, we have had open houses still. but because a lot of people on many of the app, like Redfin and Zillow and whatnot, it is showing us under contract. It's showing us pending. Right, but you can make a deal. You can make a deal to where it's not like that, to where it still looks like it's open for anybody to make an offer.

And then ask your realtor to say, okay, now we need to put a stop loss on this. Like you have 60, if it's a contingency, you have 60 days or you have 90 days. And then after 90 days, we get to go to the next offer. that way you're always making sure you have people, you know, prime in the pump here and you can make this go faster. The other thing is, have you had the same realtor the whole time? Because I might be thinking about kicking that one to the curb and getting the Ramsey trusted realtor. Well, I actually did contact the Ramsey realtor not so long ago. And he said at this point, because of your situation, you're better off sticking with the same person.

because there would be a delay if I switch to a new agent. What kind of delay? What's that mean? Tell me more. Well, he is that pictures and the listing itself would take a few weeks for it to get going again. Yeah, you'd have to do new pictures. You can't take the old guy's work. But if you really feel like, I mean, you're the one calling us, right, saying something's not right.

And they are the professional, not you. So they should be getting to the bottom of this a lot faster. not us, not you having to call into a radio show for us to tell you what a realtor should have been telling you, basically is what I'm saying. Yeah. And my guess is, let's say you guys walk away from this with, I don't know, $900,000 net?

Yeah. Or is there still a loan to pay off? Yeah, we have to come out of pocket for any different semi. So you're telling me on June 1st, the entirety of that loan is due? They gave us till June 4th because that was when escrow was supposed to close. Okay. They have enabled to secure buyers. But how are you going to come up with that amount of money, even if you sold this house?

We have a savings. Obviously, we would have rather not 100. Okay. Can you negotiate an extension with the lender? That would be your best bet right now to attempt that. I mean, I've already asked, and nobody seems to get back to me on that. Well, otherwise, it's going to go through foreclosure. Yeah, because your house is the collateral here.

So that's even scarier. So I'm wondering if they would work with you and say, hey, we can give you this much right now. Would you be willing to file an extension buying us another month so that we can close? Especially knowing that you're under contract, I would think. And then put pressure on the buyer to say, hey, we need to close by this date in the contract no matter what. Well, my question is also, is it better to just terminate this contract? contract and go back on the market. Why?

Why would you take the only fish on the line, off the line? What I'm telling you do is you can open it up and say still accepting offers. So it would say like contingent, still accepting offers. You can still get more offers. And if a buyer can close fast, that's your ticket out of this thing. And 40 days. 40 days. Well, they won't offer anything if it says it's under contract.

Yeah. And you do have an offer. The description says active kickout is what the description on all of those says, the agent added that little piece. Right, but they need to change it to where it shows as totally open. And that is 100%. My husband and I have done that. It's possible to do that. And I also want to encourage you that 40 days for the contingent offer, if it's taken them 40 days, let's pretend that your contingent offer, saw your house, loved it, made an offer, and then the next day put their house on the market, right? It's not uncommon. That's essentially what happened. Exactly. And what I want to give you hope for is that the average time

for a house to be on a market before it sells is 50 days. Okay, so you're at 40. You've got a fish on the line. Don't throw it back because it's squirming a little bit. Just keep reeling it in. And while you reel it in, make sure that your house is showing is available on all the different apps out there so that people know. Your realtor should know to do this.

And if not, you need to be getting all up in their grill about this, George. You got to fight. Fight and claw your way out of this thing. Don't go through foreclosure. No more hard money loans. Michael is in Munich, Germany. Hey, Michael, welcome to the Ramsey Show. Hey, Dave and George.

Thanks so much for taking my call today. Sure. What's up? Hey, well, get right to the point. My wife and I are trying to work through prioritizing our upcoming housing decisions. We're coming back to the states in about 60 days to Florida, which is home for us. And we're just looking for some help working through prioritizing. where we want to live versus the type of home that we want to purchase.

And those two things aren't necessarily adding up, matching up. You military? We are military family, yes, sir. All right. And how long will you be stationed in Florida? We'll be there a minimum of three years. We've got a daughter who will start her sophomore year of high school, and they have a plan for military in that situation.

to stabilize you for three years to help your kids graduate high school. So at a minimum, three years. Okay. Let's get down into your question. Before we do, though, let me give you a couple of guidelines because we work with military folks all over the world and have for 20-plus years. You have to buy in an area where you can get out of the real estate

with your skin intact in three years. Uh-huh. Okay. Otherwise, you'd be better off to rent than lose money, right? Or be stuck in the house. So we always tell people there's two statistics you want to look at in the area you're considering. And your real estate agent, and you can get one at Ramsey trusted on our website that we endorse and that we've been working with, a high-octane real estate agent can give you these two statistics.

Here's how they work, and they're pretty common sense once you hear them. Okay. The first one is in the area within a five-mile real estate. radius of the area that you're looking at a particular house. What is the average days on the market, D-O-M, before sale? Okay? So if you're hearing average days on the market of 27 days, well, we know we can sell the house pretty quick, right?

Because it's a hot market. If the average days on the market are 270 days, that's nine months. You're screwed. If you buy a house in there, you're not going to be able to get rid of it. So don't buy. If that's where you want to live, rent. Okay. The second number runs right with that, and you'll find them to be correlated,

is you're looking for the average rate of growth price change. And so if the average price change is 2% a year, that's 6% in three years. You're going to lose money when you sell the house because the house hasn't gone up enough to cover the costs when you sell it. All right. If the average rate of growth price-wise in the last three years is 10% or five years is 10% a year, well, you're going to make 30% on this thing. And, you know, you've got plenty of margin.

Now, oddly enough, the short days on the market will equate to a higher appreciation rate. Follow me? Got it. That makes sense. Yeah. So you're not going to find a 30% growth with a 270 days on the market. That doesn't, those two things don't. go together. You're going to find the 27 days on the market or whatever. Short days on the market

and high growth. You can get in and out of the house and make money in your three-year window. Might be a four-year window, might be a five-year window, but you've got to work on a three-year because that's all you're guaranteed. Okay. If you can't do that, and that's the area you determined live in, then don't buy just rent. Better to be rent than be stuck in a house. Okay. So now what are the two things you're trying to line up that aren't lining up? Type of house and area, you said? Yes, sir. Yeah. So we've got family in the area, specifically my sister's family in the South Tampa area. Love to be nearby. It's a great area. And of course, close to work. It's extremely expensive. And so we, again, are just trying not to make any rash decisions. I understand

the math and the guidelines. And so we're trying to hunt inside of those. And so it's just challenging. And I think the flip side to that is coming from Germany. The house is a little different over here. So I would like some breathing room, some space, and that comes with a cost specifically, kind of abandoning the options in the price range, I think, where we want to be, not a terrible alternative,

but the drive would be about 45 minutes to an hour, potentially depending on traffic. So just balancing those two things, and we're kind of stuck at figuring out what to prioritize. Yeah. Okay. So, yeah, you have discovered the equation, and the equation is not counting water or mountains. In other words, being on the water or being with a view, not counting those things. Generally speaking, you drop a pebble in the center of town, and as the rings go out further and further into the country, it gets cheaper.

That's right. But you've got to commute in, as you just discussed. And so that's general urban growth theory. Okay. Now, if those rings go out and one of them bumps into a lake, oh, that's not going to be because that lake's going to be expensive or one of them bumps into a mountain and you've got a view. That's not going to work because that mountain's going to be expensive.

But other than that, just generally speaking, as you go further from town, get further out into the country, you're going to get a cheaper property. No kidding. Everybody kind of knows that, right? It's common sense. So that's what you've already figured out. So I would just tell you, if I'm you, I might move there and rent for six months and just study the market. Just turn over every rock.

I mean, you're having to do everything long distance by Internet right now. And you're not rash if you have all the options have been considered. But also doing that long distance is very difficult. So the more knowledge you have of the market, the better a decision you're going to make. Yeah, no, that makes sense. So, I mean, we've got... I'm okay if you wear some real estate agent out, just looking at houses. Yeah, we've started that.

We've gotten hot on it because this is a... Can you afford to rent the spot you want in the area you want? We can. It's a little more feasible, but swallowing that three-year net cost at the end of it has been tough as well. That's what I'm trying to really dive into in terms of numbers. I think the market that you're describing is, you know, $140,000. is going to lend itself to owning. I think you'll be able to sell it and get back out of it,

but you're just going to have to find something that meets your needs and follows good, reasonable budget. And that's going to come from searching, searching, searching, searching, searching, if you have three options to look at, you're not going to make as good decision as if you have 300. And probably neither one's realistic. You're probably not going to have 300. You're probably going to have more than three. But bottom line is, the more options we have and the more research you've done,

And the more time you got. Yeah. All of that really helps you make the right decision. Rachel had a car picked out that she'd looked at the picture of to buy as her first car. How'd that go? Until we went and drove it. She didn't like it. Hmm.

The picture was pretty, though. Yeah. That's the thing right there. The more work you do on the purchase, the better the decision you're going to make. And less regret on the other side. Exactly. The quality of the decision.