Bridge Loans in Phoenix: How to Unlock Home Equity to Buy Before You Sell
- Published on
- 12 min read
-
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.
Selling your current home while buying a new one can feel like a high-stakes balancing act. Timing the sale and purchase just right — especially in a competitive market like Phoenix — often adds extra pressure.
When inventory is low, and prices are high, it might seem like your only option is to sell first, move out, and find a temporary place to live while you search for your next home. But there’s another way to make the pieces fit together more smoothly.
A bridge loan could be the solution you’re looking for. This short-term financing option can help you buy your new home first and then sell your old one on your schedule.
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.
What is a bridge loan, in simple words?
A bridge loan is a short-term loan that helps you buy a new home while you’re still in the process of selling your current one. It uses the equity you’ve built in your existing home to give you quick access to cash for a down payment or to cover closing costs on your next purchase.
Because bridge loans are designed for speed and convenience, they usually cost more than a traditional mortgage. But for many buyers, the higher cost is worth it to avoid rushed sales or temporary housing.
Bridge loans are also sometimes called:
- bridge financing
- bridging loan
- interim financing
- gap financing
- swing loans
How does a bridge loan work in Phoenix?
A common scenario in Phoenix where you might need a bridge loan happens when you find the perfect new home but haven’t yet sold your current one. In this case, you would use the equity from your existing home to cover the down payment and closing costs on your new purchase.
The lender handling your new mortgage will often also offer a bridge loan option. They usually require that your current home be actively listed for sale and will typically extend the bridge loan for six months to one year.
Your lender may need to calculate your debt-to-income ratio, which could include your old mortgage payment, your new mortgage payment, and any interest-only payments on the bridge loan.
If your current home is already under contract and the buyer has final loan approval, your lender might only count your new mortgage payment. This helps make sure you’re financially covered if your old home doesn’t sell right away.
What are the benefits of a bridge loan in Phoenix?
There are benefits to using a bridge loan that can help make your move to Phoenix a little smoother.
- You can make a non-contingent offer: Sellers often prefer buyers without home sale contingencies.
- You only have to move once: Skip the hassle and extra costs of temporary housing or storage.
- You can prepare your old home: Move out first, then focus on staging and repairs.
- Some lenders don’t require payments during the loan period: You may not owe anything until your old home sells.
- You can act quickly on the right property: Make an offer without worrying about selling first.
What are the drawbacks of a bridge loan?
While a bridge loan can increase your flexibility and relieve some pressure during a buy-sell move, there are still a few drawbacks to consider.
- Additional loan costs: You may pay underwriting fees, origination fees, and other closing costs.
- Added financial stress: You could end up covering two mortgages and a bridge loan at the same time.
- Qualifying may be harder: Lenders often have stricter requirements than they do for a traditional mortgage.
- Underwriting can be slower: The review process might take longer than you expect.
When is a bridge loan a good solution?
A bridge loan isn’t the right solution for every situation, but it can ease the stress of selling and buying simultaneously.
Some examples of when a bridge loan might be a good solution include:
- You need the equity from your current home for your new home’s down payment.
- You can’t afford the costs of a double move or temporary housing between selling and buying.
- Your dream home just hit the market, and you want to move fast before it’s gone.
- Your offer’s home sale contingency has been a deal-breaker for sellers.
- You’re unable to prepare or sell a staged home while still living in it, and want to move out first.
What’s required to get a bridge loan in Phoenix?
To qualify for a bridge loan in Phoenix, you typically need the following:
- Qualifying income: Your lender will check if you can afford payments on your current mortgage, new mortgage, and bridge loan.
- Sufficient equity: You’ll usually need at least 20% equity in your current home, but some lenders may require up to 50%.
- Good credit history: Most lenders want a credit score above 650, which can impact your interest rate and loan terms.
- Your current home to be listed for sale: Some lenders require proof your home is actively on the market to support the bridge loan.
How much does a bridge loan cost in Phoenix?
Below is an example of how much a $440,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase, but you’re still waiting for your current Phoenix house to sell. The new home’s asking price is $510,000. You can only come up with $140,000, but you have at least another $440,000 worth of equity in your current property. You want to access that money to cover the shortfall before your new home is sold to another buyer.
| Net loan amount | $440,000 | $440,000 |
| Interest (varies) | 10% (example for 6 months) | $44,000 |
| Origination fee | 1.5% | $6,600 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $8,800 |
| Total repayable amount | $501,100 |
*These closing costs typically range between 1.5%-3%
What's Your Current Home Worth?
As you make plans to buy a new home, get a value estimate on your current house from HomeLight for free. Our tool analyzes 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 Phoenix?
Due to the underwriting demands for this type of loan, fewer institutions in Phoenix offer bridge loan products. Curious borrowers may want to check with several different lenders before applying. The most common sources include:
- Your mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-qualified mortgage (non-QM) lenders
Are there alternatives to bridge loans in Phoenix?
While a bridge loan might not work for every Phoenix 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 just 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 allows you to pull money out of your property for a relatively low interest rate. Instead of receiving the money all at once, 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 compared to regular refinancing options but are lower than those for 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. This would mean that 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 be taking a first mortgage and second mortgage out at the same time to fund your new purchase — this means that 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 — 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 will need to include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you might be able to borrow up to $50,000 to put toward your new purchase.
Are there modern ways to buy a house before I sell?
With today’s technology, real estate solution companies like HomeLight incorporate bridge loans into convenient programs that streamline the process of buying and selling a house simultaneously in Phoenix. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you successfully complete your move to a new home, thereby reducing stress and worry.
Together with your Phoenix agent, HomeLight can help you move into your new home with speed and certainty while helping you get the strongest possible offer for your old home. Check with your agent to see if HomeLight Buy Before You Sell is available in your area.
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 Phoenix:
- 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.
- Buy your dream home with confidence: Once you’re approved, you’ll have access to a portion of your equity in your current home. You’ll be able to 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 current home.
- 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 strongest offer possible. You’ll receive the remainder of your equity after the home sells.
Benefits of Homelight Buy Before You Sell
- Flexibility in 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.
- Sell for up to 10% more: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to HomeLight transaction data.
For Phoenix homeowners caught in the buy-sell conundrum, HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution. Learn more program details at this link.
HomeLight also offers other services for homebuyers and sellers in Phoenix, such as Agent Match to find the top-performing real estate agents in your market, and Simple Sale, 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 Phoenix homeowners
As Phoenix homebuyers face a competitive market and rising home prices, many are looking to bridge loans to help them buy a new home before selling their current one.
A bridge loan allows you to tap into your existing equity to secure your next home, giving you valuable time to sell without the stress of rushed deadlines.
While a bridge loan can offer flexibility, it does come with added costs and might not fit every situation.
Consider HomeLight’s Buy Before You Sell program as a simpler, modern solution to make your move easier. HomeLight can also connect you with a top-performing Phoenix buyer’s agent who has experience helping clients use bridge loans.
Editor’s note: As a friendly reminder, this post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Phoenix, HomeLight encourages you to reach out to your own advisor.
Header Image Source: (Chris Tingom/Unsplash)
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
