Bridge Loans in Michigan: How to Unlock Home Equity to Buy Before You Sell
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Joseph Gordon, EditorClose
Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
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Sam Dadofalza, Associate Refresh EditorClose
Sam Dadofalza Associate Refresh EditorSam Dadofalza is an associate refresh editor at HomeLight, where she crafts insightful stories to guide homebuyers and sellers through the intricacies of real estate transactions. She has previously contributed to digital marketing firms and online business publications, honing her skills in creating engaging and informative content.
Buying and selling a home simultaneously in Michigan can be an incredibly stressful experience. Homeowners often find themselves overwhelmed, juggling a long list of tasks to align the timelines for both transactions.
As you grapple with the emotional weight of leaving a beloved space, financial concerns add to the stress, especially since you can’t move forward with your new purchase until your current sale is finalized. The thought of incurring additional moving costs only cranks up the pressure. However, innovative financing solutions can alleviate some of that pressure, offering a way to seamlessly bridge the gap between selling and buying. The solution? Bridge loans.
Tailored as a short-term financing option, a bridge loan in Michigan offers the flexibility to purchase your new dream home before you’ve sold your current one, easing the transition and reducing the stress of a double move.
Yes, You Can Buy Before You Sell. Why Move Twice?
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
DISCLAIMER: This post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Michigan, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
Imagine you’ve found your dream home in Michigan, but you’re still waiting to sell your current house. This is where a bridge loan comes into play. A bridge loan is a short-term financial solution designed to “bridge the gap” between selling your existing home and purchasing your new one. It leverages the equity in your current home, providing you with the necessary funds for a down payment and covering closing costs on your new property.
Bridge loans are sometimes referred to as gap financing or swing loans.
While they tend to be pricier than traditional mortgages, bridge loans offer a quick and convenient way to secure your new home without the wait to sell your old one. This type of financing is a strategic tool for making your transition smoother and less stressful.
How does a bridge loan work in Michigan?
When would you consider a bridge loan? Typically, when you’re ready to buy a new home and your current one hasn’t yet sold. This is a common predicament, especially in a market where timing doesn’t always align perfectly. In this scenario, the equity from your existing home is used to help finance your new property’s down payment and closing costs.
The same lender handling your mortgage for the new home will often manage your bridge loan. They usually require that your current home be actively listed for sale, offering the bridge loan for a period ranging from six months to a year.
An important factor in this process is your debt-to-income ratio (DTI). This ratio is calculated by including your old and new home’s mortgage payments and any interest-only payments on the bridge loan. This calculation helps lenders assess your ability to manage payments on both properties simultaneously, a crucial consideration since there’s always a chance your current home might not sell immediately.
In some cases, if your existing home is already under contract and the buyer has secured their loan, the lender might only consider the mortgage payment for your new home in the DTI calculation. This flexibility can be a significant relief, ensuring you’re not overstretched financially during the transition period.
What are the benefits of a bridge loan in Michigan?
Bridge loans offer several advantages that can make your home-buying experience more flexible and less stressful. Here are some key benefits:
- You can make a non-contingent offer: An offer without conditions is more attractive to sellers, thereby increasing your chances of being able to buy the home.
- You only have to move once: Avoid the hassle and cost of temporary housing.
- You can prepare your old home for sale after moving out: This can help you stage and sell your home more effectively.
- Some lenders don’t require payments during the loan period: This eases financial pressure while you transition.
- You can move on the right property quickly: Don’t miss out on your dream home while the sale status of your current one is pending.
These benefits make a bridge loan an appealing option for Michigan buyers who need financial flexibility before selling their previous home. Ultimately, they can use the sale proceeds to settle the bridge loan.
What are the drawbacks of a bridge loan?
While bridge loans can be the right solution for handling the transition between selling your current home and purchasing a new one, they have certain drawbacks. It’s essential to weigh these cons carefully:
- You incur additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- You deal with increased financial stress: Managing payments for up to two mortgages plus a bridge loan can be challenging.
- Qualifying may be more difficult: Approval criteria for bridge loans are often stricter than traditional mortgages.
- Underwriting can be slow: The process might take longer than anticipated, affecting your timelines.
- You must satisfy equity requirements: Your qualification heavily depends on the equity in your current home. Owing more than 80% of your home’s value could be a disqualifier.
Understanding these potential drawbacks is crucial in deciding whether a bridge loan suits your financial situation and home-buying strategy.
When is a bridge loan a good solution?
A bridge loan isn’t always the go-to option for every real estate transaction, but it can significantly ease the transition from your old home to a new one in specific scenarios. Here are some situations where a bridge loan might be particularly beneficial:
- Equity access: You need the equity from your current home for a new home’s down payment.
- Reduced moving costs: You can’t afford a double move, and interim housing or bridging the sale and purchase timelines is essential.
- Time pressure: Your dream home just hit the market, and you want to take immediate action, bypassing competitive delays.
- Contingency woes: Your offer’s home sale contingency has been a deal-breaker, and you want immediate purchasing power.
- Staged space: You want to sell an empty or staged home, which is often more lucrative and convenient. This is particularly relevant if you cannot prepare or stage your current home while still living in it. A bridge loan can provide the funds to move into your new home, allowing you to stage and sell your old home in its best possible light.
What’s required to get a bridge loan in Michigan?
To qualify for a bridge loan in Michigan, you must meet the following criteria:
- Qualifying income: Your lender will assess your income to ensure you can manage payments on your current mortgage, your new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: You need at least 20% equity in your current home, though some lenders may require as much as 50%.
- Good credit history: A favorable credit score, usually above 650, is necessary. This score influences your interest rate and other factors like loan-to-value ratio. Higher scores are always advantageous.
- Currently listed home: Some lenders may require evidence that it is on the market, ensuring it’s likely to sell within the bridge loan term.
How much does a bridge loan cost in Michigan?
A bridge loan in Michigan typically comes with a higher interest rate than a standard mortgage. Interest rates should be about 1 to 3 percentage points higher than those for a conventional mortgage loan. Additionally, bridge loans may include various transaction fees.
The elevated cost is due to the increased risk lenders take on with bridge loans. Consider the possibility that your current home might not sell within the expected timeframe, which could lead to the need to cover both your mortgage and bridge loan payments simultaneously.
Your specific rate will largely depend on your creditworthiness and the lender you choose.
How to reduce bridge loan costs
Applying for a bridge loan with the same lender as your new mortgage can reduce costs. In such cases, you might not need to pay extra for underwriting or other mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to shop around and compare options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option aligns best with your needs, considering the total costs, convenience, and suitability.
Budget for closing costs
In addition to interest and fees, you’ll also need to budget for closing costs and other legal and administrative expenses. These costs typically range from 1.5% to 3% of the loan amount and can include:
- Appraisal fees
- Administration fees
- Escrow fees
- Title policy costs
- Notary fees
- Loan origination fees
Understanding these costs upfront will help you budget effectively for your bridge loan in Michigan.
Bridge loan cost example
Below is an example of how much a $140,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase but still wait for your current Michigan house to sell. The asking price for the new home is $250,000. You can only come up with $110,000, but you have at least another $140,000 worth of equity in your current property. You want to access that money to cover the shortfall before selling your new home to another buyer.
| Net loan amount | $140,000 | $140,000 |
| Interest (varies) | 10% (example for 6 months) | $7,000 |
| Origination fee | 1.5% | $2,100 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $500 | $500 |
| Closing cost* | 2% | $2,800 |
| Total repayable amount | $153,400 |
*These closing costs typically range between 1.5% and 3%
How Much Is Your Michigan Home Worth Now?
Get a near-instant real estate house price estimate from HomeLight for free. Our tool analyzes the records of recently sold homes near you, your home’s last sale price, and other market trends to provide a preliminary range of value in under two minutes.
Who provides bridge loans in Michigan?
In Michigan, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. Exploring options with various lenders is a good idea for a bridge loan. The most common sources for bridge loans include:
- Your mortgage lender: Start with the lender of your current mortgage. They might offer bridge loans as part of their services.
- Local banks: Many community banks in Michigan provide personalized financing options, including bridge loans.
- Credit unions: These member-owned institutions often have competitive rates for bridge loans.
- Hard-money lenders: These are private investors or companies offering higher-interest, short-term loans.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.
Additionally, some modern real estate companies specialize in finding bridge loans for their clients, making the process of bridging the gap between buying and selling a home more streamlined.
Are there alternatives to bridge loans in Michigan?
While a bridge loan might not work for every Michigan homeowner’s unique situation, there are alternatives to consider:
- Home equity loan: This kind of loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral. Interest rates for a home equity loan can be more expensive than your current rate on your first mortgage, but instead of completing a cash-out refinance (paying off the first mortgage and borrowing cash), you can borrow the money you need at the higher interest rate and leave your first mortgage of at its lower rate.
- Home equity line of credit (HELOC): Another option to use your existing equity is a HELOC. This lets you pull money out of your property for a relatively low interest rate. Instead of receiving the money immediately, your lender will extend a line of credit for you to borrow against. You may have to pay an early closure fee if you open this line of credit and close it very soon after. Unlike a home equity loan, HELOCs typically have adjustable interest rates.
- Cash-out refinance: This type of loan lets you pull cash out of your home while refinancing your previous mortgage at the same time. Interest rates are typically higher for these kinds of loans than regular refinances but lower than bridge loans. This is not a solution for everyone, though. For example, you cannot do two owner-occupied loans within one year of one another. You might have to wait longer to finance your new purchase with an owner-occupied mortgage using the cash from your cash-out refinance.
- 80-10-10 (piggyback) loan: This option is called a piggyback loan because you would take a first and second mortgage out simultaneously to fund your new purchase — you would only need 10% down. For buyers who can’t make as large of a down payment before selling their previous home, this could be a solution that helps them avoid the cost of mortgage insurance. You would, however, still be carrying the cost of three mortgage payments until you sell your current home and can pay off the second mortgage.
- A 401k loan: Borrowing against your retirement account comes with some benefits and drawbacks. While it keeps you from paying early withdrawal fees and taxes, your repayment period will be relatively short (up to 5 years), and your monthly payment will likely be high. This could affect your ability to qualify for your new mortgage, as your lender must include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you can borrow up to $50,000 for your new purchase.
Are there modern ways to buy a house before I sell?
Real estate solution companies like HomeLight can incorporate bridge loans into convenient programs that streamline the buying and selling of a house in Michigan. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you complete your move to a new home, thereby reducing stress and worry.
With your Michigan agent, HomeLight can help you move into your new home with speed and certainty while helping you get the most substantial possible offer for your old home.
Examples of other “Buy Before You Sell” or home trade-in service companies include Knock, Orchard, Flyhomes, and Homeward.
How does HomeLight Buy Before You Sell work?
Here is how HomeLight’s Buy Before You Sell program works for home sellers in Michigan:
1. Apply in minutes with no commitment: Find out if your property is a good fit for the program and get your equity unlock amount approved in 24 hours or less. No cost or commitment is required.
2. Buy your dream home with confidence: Once approved, you’ll have access to a portion of your equity in your current home. You can submit a competitive offer with no home sale contingency at any time — regardless of how long it takes to find your dream home. Our near-instant Equity Unlock Calculator lets you estimate how much equity we can unlock from your home.
3. Sell your current home with peace of mind: After you move into your new home, we will list your unoccupied home on the market to attract the most substantial offer possible. You’ll receive the remainder of your equity after the home sells.
Benefits of Homelight Buy Before You Sell
- Flexible timelines: There is no need to sync up sale and purchase dates perfectly. This program gives you breathing space to plan your move without feeling hurried.
- Financial peace of mind: Say goodbye to the stress of potential double mortgages or dipping into savings to bridge the gap between homes.
- Enhanced buying power: In a seller’s market, a non-contingent offer can stand out, increasing your chances of landing your dream home.
- More home sale earnings: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to data from HomeLight’s Top Agents Insight Report.
HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution for Michigan homeowners caught in the buy-sell conundrum. Learn more program details at this link.
HomeLight also offers other services for homebuyers and sellers in Michigan, such as Agent Match, which helps you find the top-performing real estate agents in your market, and Simple Sale, which provides a convenient way to receive a no-obligation, all-cash offer to sell your home in as little as 10 days. You might also try HomeLight’s Net Proceeds Calculator as you plan your home sale.
A creative financing solution for Michigan homeowners
As Michigan homeowners face the challenges of a tight housing market and rising home prices, many are considering bridge loans to streamline the process of buying a new home while selling their old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows for more time to sell. This can significantly ease the stress of perfectly aligning the sale and purchase timelines.
However, while bridge loans can be a highly convenient solution for navigating this transition, they also come with higher costs and may not be suitable for everyone’s financial situation.
For a more streamlined and less uncertain approach to your next home purchase, consider exploring HomeLight’s Buy Before You Sell program.
HomeLight can also connect you with a top-performing Michigan real estate agent with expertise in bridge loans and other financing options, ensuring you make the best decision for your unique circumstances.
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