Leverage Your Home Equity to Buy Before You Sell: Maryland Bridge Loans Explained

These benefits collectively make bridge loans a practical and convenient financing option for Maryland buyers who need immediate liquidity before the sale of their previous home.

What are the drawbacks of a bridge loan?

While bridge loans offer flexibility and can ease the transition between selling and buying homes, they also come with certain drawbacks that are important to consider:

These factors highlight the importance of carefully considering your financial situation and consulting with a financial advisor before deciding on a bridge loan.

When is a bridge loan a good solution?

A bridge loan isn’t the right choice for every real estate transaction, but in certain situations, it can significantly ease the transition from your current home to a new one. Here are scenarios where a bridge loan might be the ideal solution:

• You need the equity from your current home to make the down payment on a new one.
• Affording a double move and interim housing is challenging, or bridging the sale and purchase timelines is crucial.
• Your ideal home is on the market, and you need to act fast to avoid losing it in a competitive market.
• Your offers with a home sale contingency keep getting rejected, and you need more immediate purchasing power.
• You’re aiming to sell a vacant or staged home, which can often be more appealing to buyers and potentially more profitable. This is especially important if you’re unable to prepare or stage your current home for sale while still living in it. With a bridge loan, you can buy your next home and move out of your current one, enabling you to stage or renovate the property. This can help speed up the sale and potentially increase your home’s market value.

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

To qualify for a bridge loan in Maryland, there are several key requirements you’ll need to meet:

• Qualifying income: Lenders will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and any interest-only payments 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 essential. This score affects your interest rate and other factors like the loan-to-value ratio. The higher your score, the better the terms you might receive.
• Home listed for sale: Many lenders will require that your current home is listed for sale, ensuring that it will likely be sold by the time your bridge loan term ends.

How much does a bridge loan cost in Maryland?

The cost of a bridge loan in Maryland generally exceeds that of a standard mortgage. You can expect the interest rates to be about 1 to 3 percentage points higher than those of a typical mortgage loan. In addition to the higher interest rates, bridge loans often involve additional transaction fees.

This increased cost is due to the higher risk bridge loans pose to lenders. It’s important to consider the possibility of your current home not selling within the expected timeframe, which could result in you needing to cover both your mortgage and bridge loan payments simultaneously. Ensure you’re financially prepared for this scenario before proceeding.

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

How to reduce bridge loan costs

If you’re obtaining a bridge loan from the same lender as your new mortgage, you may not need to pay additional underwriting or mortgage fees. This is because both your bridge loan and mortgage will be underwritten and approved concurrently.

It’s advisable to compare options across different lenders. Remember, bridge loans are intended as a short-term solution, so evaluate what financing option best aligns with your financial situation, convenience, and overall needs. We will explore more options in an upcoming section.

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 Maryland house to sell. The new home’s asking price is $500,000. You can come up with $300,000, 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% and 3%.

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Who provides bridge loans in Maryland?

In Maryland, while bridge loans are a specialized product with unique underwriting requirements, there are still several types of financial institutions and lenders that offer them. If you’re considering a bridge loan, it’s a good idea to explore various options before committing. The most common sources for bridge loans in Maryland include:

• Your mortgage lender: The lender handling your new home’s mortgage may also offer bridge loans.
• Local banks: Many local banks provide bridge loan services, often with terms tailored to the local real estate market.
• Credit unions: These member-owned institutions can be a source for bridge loans, sometimes offering more favorable terms.
• Hard-money lenders: These hard-money lending companies are private investors or institutions specializing in short-term lending, often at higher interest rates.
• Non-qualified mortgage (non-QM) lenders: These lenders provide loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.

Additionally, modern real estate companies have entered the market, offering services to streamline the process of obtaining a bridge loan for your home purchase and sale. We’ll share how these programs later in this article.

Are there alternatives to bridge loans in Maryland?

If you think a bridge loan won’t work for your financial situation, explore these alternatives:

• 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 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 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 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 Maryland. 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 Maryland 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 Maryland:

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 Maryland 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 Maryland, 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 Maryland homeowners

As Maryland homeowners face the challenges of an ever-evolving housing market and high property values, many are discovering that bridge loans offer a strategic solution to the complex process of buying a new home while selling their old one.

Bridge loans enable homeowners to use the equity from their previous home toward their new purchase. This financial flexibility gives you more time to sell your old home, alleviating much of the stress related to syncing the sale and purchase timelines.

While bridge loans can be an exceptionally convenient option during this transition, they come with higher costs and might not be suitable for everyone’s financial situation.

For a more seamless approach, consider HomeLight’s Buy Before You Sell program. This streamlined program is designed to reduce the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a highly skilled Maryland buyer’s agent who is well-versed in the intricacies of bridge loans, ensuring you have expert guidance every step of the way.

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