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

What’s required to get a bridge loan in New Jersey?

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

• Qualifying income: Your lender 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 at least 20% equity in your current home, though some lenders may require up to 50%.
• Good credit history: A favorable credit score, usually above 650, is essential. This influences your interest rate and other factors like loan-to-value ratio. Higher scores are always better.
• Your current home listed for sale: Some lenders may need proof that it is on the market, ensuring it’s likely to sell before the bridge loan term ends.

How much does a bridge loan cost in New Jersey?

In New Jersey, the cost of a bridge loan typically exceeds that of a standard mortgage. Interest rates on bridge loans are generally 1-3 percentage points higher than those for traditional mortgage loans.

Additionally, bridge loans often involve extra transaction fees. This higher cost is attributed to the increased risk for lenders, as there’s always a chance that your current home may not sell within the expected timeframe. If this happens, you must be financially prepared to handle your mortgage and bridge loan payments simultaneously.

The specific rate you’ll be mainly offered depends on your creditworthiness and your chosen lender.

How to reduce bridge loan costs

Applying for a bridge loan with the same lender as your new mortgage can lead to cost savings. In such cases, you might not need to pay additional underwriting or other mortgage fees, as both your bridge loan and new mortgage will be processed together.

It’s advisable to compare different lenders and bridge loan options. Remember, bridge loans are meant as a short-term solution. Evaluate not just the total costs but also the convenience and suitability for your specific situation. We’ll explore more financing options in a later section.

Budget for closing costs

Apart from the loan, you’ll also need to budget for various closing costs and legal/administrative fees. These typically range from 1.5% to 3% of the loan amount and can include:

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

Note: A detailed cost example for a $350,000 bridge loan will be provided in the accompanying table.

Bridge loan cost example

Below is an example of how much a $350,000 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 New Jersey house to sell. The asking price for the new home is $500,000. You can only come up with $150,000, but you have at least another $350,000 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 New Jersey?

In New Jersey, the availability of bridge loans might 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 New Jersey include:

• Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans as part of their services.
• Local banks: Many community banks in New Jersey provide personalized lending services, including bridge loans.
• Credit unions: These member-owned institutions often offer competitive loan options, including bridge loans.
• Hard-money lenders: These are private investors or companies specializing in short-term lending, often at higher interest rates.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.

Some modern real estate companies also offer services to help you find a bridge loan, streamlining the gap between buying and selling a home. More details on this will be shared later in the post.

Are there alternatives to bridge loans in New Jersey?

While a bridge loan might not work for every New Jersey 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?

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 New Jersey. 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 New Jersey 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 in your area.

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 New Jersey:

1. 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.
2. 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.
3. 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.

For New Jersey 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 Nevada, 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 New Jersey homeowners

As New Jersey homeowners face the challenges of a tight housing market and rising home prices, many are discovering the benefits of bridge loans to ease the transition between selling their current home and purchasing a new one.

Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows more time to sell. This can significantly reduce the stress of perfectly aligning the sale and purchase timelines.

However, while bridge loans can be a highly convenient solution for navigating this period of change, they also come with higher costs. They may not be suitable for everyone’s financial situation.

Consider HomeLight’s Buy Before You Sell program for a more streamlined approach. This innovative solution is designed to alleviate the uncertainties of your next home purchase. Additionally, HomeLight can connect you with a top-performing New Jersey buyer’s agent who is well-versed in bridge loans and other financing options, ensuring you have expert guidance every step of the way.

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