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

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

• Qualifying income: Lenders will assess your income to verify that you can manage payments on your current mortgage, your new mortgage, and potentially an interest-only payment on the bridge loan.
• Sufficient equity: You need at least 20% equity in your current home, though some lenders may require as much as 50%.
• Good credit history: A favorable credit score, usually above 650, is required. This score impacts your interest rate and other factors like loan-to-value ratio. A higher score will offer better terms.
• Home listed for sale: Some lenders may need evidence that your current home is on the market, ensuring its sale within the bridge loan term.

How much does a bridge loan cost in Los Angeles?

A bridge loan in Los Angeles typically carries a higher interest rate than a standard mortgage, often ranging from 1-3 percentage points above conventional mortgage rates. Additionally, bridge loans may include various transaction fees.

This increased cost is due to the higher risk associated with bridge loans for lenders. As a borrower, it’s vital to consider the possibility of your current home not selling within the expected timeframe. In such cases, you should be financially prepared to simultaneously handle the mortgage and bridge loan payments.

Your specific interest rate will largely depend on your credit score and the type of lender you choose.

How to reduce bridge loan costs

One strategy to potentially lower bridge loan costs is applying for it through the same lender managing your new mortgage. This can often eliminate the need for separate underwriting or additional mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s also advisable to compare different lenders and bridge loan options. Remember, bridge loans are intended as a temporary solution, so choosing a financing option that suits your specific needs is crucial, balancing total costs with convenience and suitability for your situation.

Budget for closing costs

In addition to the loan, closing costs, legal and administrative fees are part and parcel of obtaining a bridge loan. These expenses 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

Bridge loan cost example

Below is an example of how much a $300,000 bridge loan might cost, along with possible fees.

You find a home you’d like to purchase but still wait for your current Los Angeles house to sell. The asking price for the new home is $900,000. You can only come up with $600,000, but you have at least another $300,000 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 Los Angeles?

In Los Angeles, not every financial institution offers bridge loan products, primarily due to their specific underwriting requirements. Exploring options with various lenders is a good idea if you’re considering a bridge loan. The most common sources for bridge loans in Los Angeles include:

• Your mortgage lender: Your current mortgage lender may often offer bridge loans, especially if you have a positive history with them.
• Local banks: Many local banking institutions in Los Angeles provide bridge loans with varying terms and conditions.
• Credit unions: As member-focused organizations, credit unions in the area might offer more favorable terms for bridge loans.
• Hard-money lenders: These private lenders offer loans based on your property, not your creditworthiness.
• Non-qualified mortgage (non-QM) lenders: These lenders provide loans that do not meet the standard federal guidelines, including bridge loans.

While a bridge loan might not work for every Los Angeles 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 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 Los Angeles. 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.

With your Los Angeles 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.

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 Los Angeles:

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’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.

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.

For Los Angeles 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 Los Angeles, 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 Los Angeles homeowners

As Los Angeles homebuyers maneuver through a competitive housing market with high home prices, many are discovering the advantages of bridge loans.

Bridge loans offer a unique opportunity for homeowners to leverage the equity in their previous home for their new purchase. This provides valuable breathing room to sell without the pressure of perfectly timing the transactions.

Although bridge loans can be highly convenient, they come with their own challenges and may not be suitable for every homeowner.

For alternatives, consider HomeLight’s Buy Before You Sell program. It’s designed to reduce the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-rated Los Angeles buyer’s agent experienced in bridge loan transactions, ensuring you have expert guidance every step of the way.

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