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

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

To qualify for a bridge loan in Hawaii, you’ll need to meet specific criteria that lenders look for:

• Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, your new mortgage, and potentially an interest-only payment on the bridge loan.
• Sufficient equity: You need to have significant equity in your current home, typically at least 20%, though some lenders may require up to 50%.
• Good credit history: A good credit score, usually above 650, is typically required. This affects your eligibility, interest rate, and other loan terms. If you have a strong payment history, check with your current mortgage lender for potential bridge loan options.
• Home listed for sale: Many lenders require that your current home is on the market, ensuring it’s likely to sell within the bridge loan term.

How much does a bridge loan cost in Hawaii?

A bridge loan in Hawaii typically comes with a higher interest rate than a standard mortgage. You can expect interest rates to be about 1 to 3 percentage points higher than what you might qualify for on a traditional mortgage loan. Additionally, bridge loans often include extra transaction fees.

This higher cost is due to the increased risk for lenders, as there’s always the possibility that your home may not sell within the expected timeframe. If this happens, you must be financially prepared to handle mortgage and bridge loan payments.

The specific rate you’ll be offered depends on your creditworthiness and the lender you choose.

How to reduce bridge loan costs

One way to potentially reduce costs is by applying for a bridge loan with the same lender handling your new mortgage. This could save you from paying additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s also beneficial to shop around and compare options. Remember, bridge loans are a short-term solution, so it’s important to find the best fit for your financial situation and needs, considering total costs and convenience.

Budget for closing costs

In addition to the loan itself, you’ll need to budget for various closing costs and fees, typically ranging from 1.5% to 3% of the loan amount. These may include:

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

Understanding these costs upfront will help you better prepare for the overall expense of obtaining a bridge loan in Hawaii.

Bridge loan cost example

Below is an example of how much a $450,000 bridge loan might cost, along with possible fees.

You find a home you’d like to purchase but still wait for your current Hawaii house to sell. The asking price for the new home is $850,000. You can only come up with $400,000, but you have at least another $450,000 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.

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

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Who provides bridge loans in Hawaii?

In Hawaii, the availability of bridge loans may be more limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring various lending sources before deciding is a good idea. The most common providers of bridge loans in Hawaii include:

• Your mortgage lender: Start with the lender of your current mortgage. They might offer bridge loans, especially if you have a good payment history.
• Local banks: Many local banks in Hawaii understand the unique real estate market and may offer bridge loan options.
• Credit unions: As member-focused institutions, credit unions can sometimes provide more flexible lending options, including bridge loans.
• Hard-money lenders: These hard-money lending institutions are often more willing to take on the higher risk associated with bridge loans, albeit usually at higher interest rates.
• Non-qualified mortgage (non-QM) lenders: These lenders specialize in loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.

Additionally, more modern real estate companies are offering services to help bridge the gap between buying and selling homes, including assistance in securing bridge loans. We’ll delve into how this works later in the post.

Are there alternatives to bridge loans in Hawaii?

While a bridge loan might not work for every Hawaii 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 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 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 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 lets you avoid early withdrawal penalties, but 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 incorporate bridge loans into convenient programs that streamline the process of buying and selling a house simultaneously in Hawaii. 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 Hawaii 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.

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 Hawaii:

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 strongest 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 could result in earnings of up to 13% more, according to the HomeLight Top Agent Insights report.

For Hawaii 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 Hawaii, 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 Hawaii homeowners

As Hawaii’s homeowners navigate the complexities of an ever-evolving housing market and elevated home prices, many consider bridge loans a viable option to streamline 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 flexibility in timing your sale. This can significantly reduce the stress of aligning the sale of your current home with purchasing your new one.

However, while bridge loans can be a highly convenient solution for transitioning between homes, they also come with higher costs and may not be suitable for everyone’s financial situation.

For a more streamlined and potentially less stressful alternative, consider HomeLight’s Buy Before You Sell program. This innovative approach is designed to ease the uncertainty of purchasing your next home. Additionally, HomeLight can connect you with a top-performing real estate agent in Hawaii who has expertise in navigating bridge loans and other financing solutions.

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