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

These benefits collectively make a bridge loan a practical choice for Houston buyers who need financial flexibility before selling their existing home, allowing them to settle the bridge loan with the proceeds from their sale.

What are the drawbacks of a bridge loan?

While bridge loans offer valuable benefits, they also come with certain drawbacks that are important to consider:

When considering a bridge loan, these factors should be carefully weighed, as they can impact your immediate financial situation and ability to secure the loan.

When is a bridge loan a good solution?

A bridge loan might not be the right fit for every real estate situation, but it can be a valuable solution in certain scenarios, especially when easing the transition between selling and buying homes:

• You need the equity from your current home for a new home’s down payment.
• You can’t afford a double move and interim housing, or bridging the sale and purchase timelines is crucial.
• Your dream home just hit the market, and you want to act fast to avoid competitive delays.
• Your offer’s home sale contingency has been a deal-breaker, and you need immediate purchasing power.
• You can prepare or stage your current home for sale while still living in it, which can often be more lucrative and convenient. Selling an empty or professionally staged home can significantly increase appeal and market value.

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

To qualify for a bridge loan in Houston, you typically need to meet the following criteria:

• Qualifying income: Lenders will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and bridge loan payments.
• Sufficient equity: You must have at least 20% equity in your current home. Some lenders may require up to 50%.
• Good credit history: A credit score above 650 is usually necessary, though requirements can vary. A higher score can result in better terms.
• Currently listed home for sale: Some lenders may need proof that your home is on the market, ensuring its sale within the bridge loan term.

How much does a bridge loan cost in Houston?

The cost of a bridge loan in Houston typically exceeds that of a standard mortgage. You can expect interest rates to be about 1 to 3 percentage points higher than those for a conventional mortgage loan. Additionally, bridge loans often include various transaction fees.

This higher cost is due to the increased risk for lenders, given the uncertainty of when your current home will sell. It’s crucial to be financially prepared to pay both your mortgage and bridge loan simultaneously, in case your home doesn’t sell within the expected timeframe.

The specific rate you’ll be offered depends on your credit score 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 eliminate the need for separate underwriting or other mortgage-related fees, as your bridge loan and new mortgage will be processed together.

It’s also important to shop around and compare options. Remember, bridge loans are meant as a short-term solution. Assess each option not just by total cost but also by convenience and suitability for your situation. Further financing options will be discussed later in this article.

Budget for closing costs

Besides the loan, you’ll need to budget for closing costs and various legal and administrative fees. 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

Understanding these costs upfront can help you better prepare financially for the bridge loan process in Houston.

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 asking price for the new home is $300,000. You can only come up with $100,000, 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 selling your new home to another buyer.

*These closing costs typically range between 1.5% and 3%. 

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Who provides bridge loans in Houston?

In Houston, the availability of bridge loans might be more limited compared to other loan types due to their specific underwriting requirements. If you’re considering applying for a bridge loan, exploring options with various lenders is wise. The most common sources for bridge loans in Houston include:

• Your mortgage lender: Many lenders offer bridge loans, especially for existing customers.
• Local banks: Banks often provide bridge loans, offering personalized service.
• Credit unions: Member-focused credit unions in Houston may have bridge loan options with favorable terms.
• Hard-money lenders: Hard-money lending institutions in Houston offer loans based on property value rather than creditworthiness, useful for urgent financing needs.
• Non-qualified mortgage (non-QM) lenders: These lenders cater to borrowers who don’t fit traditional lending criteria.

Modern real estate companies also play a role in facilitating bridge loans, offering integrated services that simplify the process of securing financing while buying and selling homes in Houston. More on this will be discussed later in this post.

Are there alternatives to bridge loans in Houston?

While a bridge loan might not work for every Houston homeowner’s unique situation, there are alternatives to consider:

• Home equity loan: This kind of loan, sometimes called an 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 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 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 helps you avoid early withdrawal fees, 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?

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 Houston. 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 Houston 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 Houston:

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.

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

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

As Houston homeowners contend with a competitive housing market and elevated home prices, many are discovering that bridge loans offer a streamlined solution for balancing selling their current home with purchasing a new one.

Bridge loans allow you to leverage the equity in your previous home for your next purchase. This affords you more time to sell and alleviates much of the stress associated with synchronizing these two major transactions.

While bridge loans can be a highly convenient tool for navigating this transition, they come with additional costs and might not be suitable for everyone.

Consider exploring HomeLight’s Buy Before You Sell program for a more tailored approach. This innovative option reduces the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-performing Houston real estate agent who is experienced in handling bridge loans and other alternative financing solutions.

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