Bridge Loans in Miami: How to Unlock Home Equity to Buy Before You Sell
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
Purchasing a new home in Miami, especially when trying to sell your old home, can be difficult. Balancing limited time and finances may feel impossible in a market where inventory is tight and prices continue to rise. You might think your only option is to sell your current home, temporarily relocate, and then begin the hunt for your dream house. But there’s another option that you probably haven’t considered: a bridge loan.
A bridge loan is a short-term loan that “bridges the income gap” between selling your existing property and purchasing your next home. This guide will explore how bridge loans in Miami work, along with their benefits and potential drawbacks, and help you determine if a bridge loan is the right move for you.
Yes, You Can Buy Before You Sell. Why Move Twice?
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
DISCLAIMER: As a friendly reminder, this post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Miami, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
In real estate, a bridge loan, also known as a swing loan, bridging loan, or gap financing, lets you utilize the equity in your existing home to give you the money required to make a down payment and cover the closing costs for your new property.
Although they’re typically pricier than traditional mortgages, bridge loans shine in their ability to provide a seamless home-buying experience. You won’t have to wait for your old home to sell before securing your new dream home.
How does a bridge loan work in Miami?
Imagine you’ve found your Miami dream home but are still waiting for your current house to sell. This is a typical scenario where a bridge loan is helpful. It allows you to tap into your existing home’s equity, providing funds for the down payment and closing costs on your new Miami residence.
Typically, the lender working on your new mortgage will also handle your bridge loan. They’ll need your existing home to be listed for sale and usually offer the bridge loan for six months to a year.
A critical part of this arrangement involves assessing your debt-to-income ratio (DTI). This includes the payments on your current mortgage, the new mortgage for your upcoming home, and any interest-only payments on the bridge loan. However, if your old home is under contract with a buyer who has secured their loan, the lender might only consider the payment on your new mortgage.
This is important for lenders to ensure that you can comfortably handle payments on both properties, especially if your current home doesn’t sell right away.
What are the benefits of a bridge loan in Miami?
Bridge loans in Miami have several advantages:
- Make a non-contingent offer on your new home, increasing its appeal to sellers.
- Only one move is required to avoid the hassle and cost of temporary housing.
- After moving, easily prepare your old home for sale, possibly including staging.
- Some lenders may offer a period with no payments due on the bridge loan.
- Don’t miss out on desired properties while waiting for your current home to sell.
What are the drawbacks of a bridge loan?
While a bridge loan offers several advantages, knowing its potential drawbacks is important:
- Involves additional loan costs like underwriting and origination fees.
- Increased financial pressure from managing up to two mortgages and a bridge loan simultaneously.
- Often harder to qualify for compared to traditional mortgage loans.
- The underwriting process can be slower than expected.
Moreover, lenders will assess the equity in your current home when determining your borrowing capacity. Qualifying for a bridge loan might be challenging if you owe more than 80% of your home’s value.
When is a bridge loan a good solution?
A bridge loan isn’t the right move for everyone, but in certain situations, it can greatly ease the transition from an old to a new home. Here are some examples of where a bridge loan might be just what you need:
- When the equity in your current home is needed for the down payment on a new property.
- If avoiding the cost and hassle of a double move and temporary housing is crucial for your situation.
- When your ideal home comes on the market, and you want to act fast without competitive delays.
- If your offer’s home sale contingency has been a stumbling block in purchasing a new home.
- When you wish to sell an empty or staged home, which is often more appealing and profitable. This is particularly relevant if you cannot prepare or stage your current home for sale while still living in it, as an unoccupied, well-staged house can significantly enhance its marketability and potentially increase its sale price.
What’s required to get a bridge loan in Miami?
To qualify for a bridge loan in Miami, 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 existing mortgage, the new one, and the bridge loan.
- Sufficient equity: You’ll usually need at least 20% equity in your current home, though some lenders may require up to 50%.
- Good credit history: A good credit score, usually above 650, is required. This influences your interest rate and other factors, like the loan-to-value ratio. A higher score is always better.
- Your current home listed for sale: Many lenders require that your current home is already on the market, as this assures them it’s likely to sell during the bridge loan term.
How much does a bridge loan cost in Miami?
A bridge loan in Miami typically carries a higher interest rate than standard mortgages, with rates ranging from 1-3 percentage points more than a typical mortgage loan. These loans may also include additional fees due to their nature and the increased risk they pose to lenders.
The heightened costs reflect the risk that your current home might not sell within the expected timeframe, necessitating mortgage and bridge loan payments. It’s crucial to be financially prepared for this scenario.
Your specific rate will largely depend on your creditworthiness and the 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 might be able to avoid extra underwriting or mortgage fees, as both loans will be processed together. It’s good to compare different lenders and loan options, considering the total costs, convenience, and suitability for your situation.
Budget for closing costs
In addition to interest rates and fees, be prepared to pay closing costs and other legal and administrative expenses. These 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
Closing costs can add significantly to your overall expenses, so it is important to budget for these as part of the total cost of your bridge loan in Miami.
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 you’re still waiting for your current Miami house to sell. The new home’s asking price is $650,000. You can only come up with $350,000, 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.
| Net loan amount | $300,000 | $300,000 |
| Interest (varies) | 10% (example for 6 months) | $15,000 |
| Origination fee | 1.5% | $4,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $6,000 |
| Total repayable amount | $327,200 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Miami Home Worth Now?
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Who provides bridge loans in Miami?
Not all financial institutions offer bridge loans due to their specific underwriting requirements. However, if you’re interested in obtaining a bridge loan, there are several types of lenders you can approach. The most common sources for bridge loans in Miami include:
- Your current mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-qualified mortgage (non-QM) lenders
Additionally, some modern real estate companies have streamlined the process of securing a bridge loan — making it easier to bridge the gap between buying and selling a home. We’ll explore how these companies operate later in this post.
Are there alternatives to bridge loans in Miami?
While a bridge loan might not work for every Miami 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 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?
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 Miami. 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 Miami 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 Miami:
- Talk to a loan officer to get qualified and approved: 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.
- House hunting and close on new home: Once 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 home.
- Sell your former home with peace of mind: After you move into your new home, work with a top agent to 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 is available in most states throughout the country. Learn more program details at this link.
Benefits of Homelight Buy Before You Sell
- Flexibility in timelines: 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.
- Sell for up to 10% more: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to HomeLight transaction data.
For Miami 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 Miami, 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 Miami homeowners
As Miami homeowners face the challenges of a tight housing market and escalating home prices, many are considering bridge loans to streamline the process of buying a new home while selling their old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, which can be applied towards purchasing your new property. This flexibility provides more time to sell your old home, alleviating much of the stress of getting the timing right.
However, while bridge loans can offer significant convenience in transitioning to a new home, they can also be costly and might not suit everyone’s financial situation.
If you want a more streamlined approach, consider exploring HomeLight’s Buy Before You Sell program. This program is designed to reduce the uncertainty in your next home purchase. HomeLight can also connect you with a highly skilled Miami real estate agent experienced in navigating the complexities of bridge loans.
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