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

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

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

• Qualifying income: Your lender will assess your income to ensure you can handle payments on your current mortgage, your new mortgage, and a possible interest-only payment on the bridge loan.
• Sufficient equity: At least 20% equity in your current home is necessary, though some lenders may ask for up to 50%.
• Good credit history: A favorable credit score, usually above 650, is required. This affects your interest rate and other terms. Check with your current mortgage lender, who might offer existing clients bridge loans.
• Your current home listed for sale: Some lenders may need proof that your current home is on the market to ensure its sale by the end of the bridge loan term.

How much does a bridge loan cost in Dallas?

The cost of a bridge loan in Dallas is typically higher than that of a standard mortgage. You can expect interest rates to be about 1-3 percentage points higher than mortgage loan rates. Additionally, bridge loans often come with extra transaction fees.

This increased cost reflects the higher risk lenders take with bridge loans, especially if your current home doesn’t sell within the expected timeframe. In such a scenario, being financially prepared to handle your mortgage and bridge loan payments is crucial.

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 save you money. You may not need to pay additional underwriting or other mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s advisable to compare different lenders to find the best financing option regarding total cost convenience and suitability for your situation. We’ll explore more options in a later section.

Budget for closing costs

When taking out a bridge loan, you must account for closing costs, legal fees, and administrative charges. These costs typically range from 1.5% to 3% of the loan amount and may include:

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

Considering these costs is essential in planning your finances for a bridge loan in Dallas.

Bridge loan cost example

Below is an example of how much a $200,000 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 Houston house to sell. The new home’s asking price is $350,000. You can only come up with $150,000, but you have at least another $200,000 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 Dallas?

In Dallas, the availability of bridge loans may be more limited due to the specific underwriting requirements of this type of loan. It’s a good idea for interested borrowers to explore various options before applying. The most common sources for bridge loans include:

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

Additionally, modern real estate companies are increasingly offering services to help find bridge loans, streamlining the process of bridging the gap between buying and selling a home. More details on this will be provided later in the post.

Are there alternatives to bridge loans in Dallas?

While a bridge loan might not work for every Dallas 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 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 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 be taking a first and second mortgage out simultaneously 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 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?

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 Dallas. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you successfully move to a new home, reducing stress and worry.

With your Dallas 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 if HomeLight Buy Before You Sell is available.

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 Dallas:

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 you’re 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 strongest offer possible. You’ll receive the remainder of your equity after the home sells.

HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution for Dallas homeowners caught in the buy-sell conundrum. Learn more program details at this link.

HomeLight also offers other services for homebuyers and sellers in Dallas, 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 Dallas homeowners

As Dallas homebuyers face a competitive housing market with high home prices, many are finding bridge loans to be useful in managing the transition between selling their current home and purchasing a new one.

Bridge loans allow homeowners to leverage the equity in their previous home for their new purchase, providing more time to sell and easing the stress of precise timing.

However, while this financing option offers convenience during this transitional phase, it’s important to note that it can be costly and may not suit everyone’s needs.

Consider the Buy Before You Sell program by HomeLight for a more streamlined approach. This program aims to reduce the uncertainties in your home-buying journey. Additionally, HomeLight can connect you with a top-performing Dallas buyer’s agent who is experienced in navigating bridge loans and other financing solutions.

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