Bridge Loans in Austin: How to Unlock Home Equity to Buy Before You Sell

These benefits make bridge loans a strategic choice for Austin buyers needing financial flexibility before their previous home sells, allowing them to utilize sale proceeds to settle the bridge loan.

What are the drawbacks of a bridge loan?

While bridge loans offer unique advantages, it’s important to consider their potential drawbacks:

Lenders will evaluate your equity in your current home alongside your monthly income to assess your borrowing eligibility. If your current home’s value exceeds 80% of what you owe, qualifying might be difficult.

When is a bridge loan a good solution?

A bridge loan can be a practical solution in certain real estate scenarios:

• Equity from your current home is needed for a new home’s down payment.
• Affording a double move and interim housing is challenging, or bridging sale and purchase timelines is crucial.
• Your dream home is available, and immediate action is required to avoid competitive delays.
• Your offer’s home sale contingency has hindered deals, and you seek immediate purchasing power.
• Selling a staged home can be more profitable, and a bridge loan allows you to prepare or stage your current home for sale while still living in it, enhancing its market appeal and potential selling price.

What’s required to get a bridge loan in Austin?

To qualify for a bridge loan in Austin, you typically need the following:

• Qualifying income: Your lender will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and potentially an interest-only payment on the bridge loan.
• Sufficient equity: At least 20% equity in your current home is necessary, though some lenders may require up to 50%.
• Good credit history: A credit score above 650 is usually needed, affecting your interest rate and other qualifications like loan-to-value ratio. Checking with your current mortgage lender, particularly if you have a good payment history, is advisable, as they might offer bridge loans.
• Your current home listed for sale: Some lenders may need proof that your current home is on the market, ensuring its sale by the bridge loan’s end.

How much does a bridge loan cost in Austin?

A bridge loan in Austin typically comes with a higher interest rate compared to a standard mortgage. You can expect rates to be about 1-3 percentage points higher than those for a typical mortgage loan. Additionally, bridge loans may include various transaction fees.

The elevated costs are linked to the increased risk lenders take on. It’s important to remember that there’s always a chance your current home may not sell within the expected timeframe. Should this happen, you must be financially prepared to cover your mortgage and bridge loan payments.

The specific rate you receive 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 help reduce costs. In such cases, you might not need to pay additional underwriting or mortgage fees, as both loans will be processed together.

It’s beneficial to compare options across different lenders. Remember, bridge loans are meant as a short-term solution, so it’s crucial to find the option that suits your needs financially and in terms of convenience.

Budget for closing costs

Don’t forget the closing costs and legal fees when budgeting for a bridge loan. These typically range from 1.5% to 3% of the loan amount and can include:

• Appraisal fee
• Administration fee
• Escrow fee
• Title policy costs
• Notary fee
• Loan origination fee

Bridge loan cost example

Below is an example of how much a $250,000 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 Austin house to sell. The new home’s asking price is $550,000. You can only come up with $300,000, but you have at least another $250,000 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.

*These closing costs typically range between 1.5%-3% 

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Who provides bridge loans in Austin?

The availability of bridge loan products may be limited due to their specific underwriting requirements. If you’re considering a bridge loan, exploring various lending options is a good idea. Common sources for bridge loans in Austin include:

• Your mortgage lender
• Local banks
• Credit unions
• Hard-money lenders
• Non-qualified mortgage (non-QM) lenders

Additionally, modern real estate companies are emerging as a convenient option. These companies can streamline securing a bridge loan, making the transition between buying and selling a home smoother. We’ll delve into how this works later in the post.

Are there alternatives to bridge loans in Austin?

While a bridge loan might not work for every Austin 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 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 might, however, 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 refinances, 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, there are real estate solution companies like HomeLight that incorporate bridge loans into convenient programs that streamline the process of buying and selling a house at the same time in Austin. 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 Austin 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 Austin:

1. Talk to a loan officer to get qualified and approved: 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. House hunting and close on new home: Once 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 home.
3. Sell your former home with peace of mind: After you move into your new home, work with a top agent to 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.

HomeLight’s Buy Before You Sell program is available in most states throughout the country. Learn more program details at this link.

For Austin 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 Austin, such as Agent Match, which helps you 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 Austin homeowners

As Austin homeowners face the challenges of a competitive housing market and rising home prices, many are discovering the benefits of bridge loans. These loans offer the flexibility to borrow against the equity in your previous home, easing the pressure of timing your sale and new purchase.

Bridge loans can significantly simplify the transition between homes, giving you the breathing room needed to sell at the right time. However, while they offer convenience, bridge loans can be costly and might not be the ideal solution for everyone.

Consider HomeLight’s Buy Before You Sell program for a more streamlined and certain approach. This innovative solution reduces the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-performing Austin real estate agent experienced in navigating bridge loans and alternative financing options.

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