Unlock Your Home’s Equity in Pennsylvania: Bridge Loans Explained

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

To qualify for a bridge loan in Pennsylvania, you typically need to meet these criteria:

• Qualifying income: Lenders 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, but some lenders might require up to 50%.
• Good credit history: A favorable credit score, usually above 650, is important. This influences your interest rate and other loan qualifications like the loan-to-value ratio. The higher your score, the better the terms you might receive. Consider checking with your current mortgage lender, especially if you have a positive payment history, as they may offer bridge loans.
• Currently listed home: While not always a requirement, some lenders may need proof that your current home is on the market to ensure its sale by the end of the bridge loan term.

How much does a bridge loan cost in Pennsylvania?

The cost of a bridge loan in Pennsylvania typically includes a higher interest rate compared to a standard mortgage. You can expect interest rates to be about 1 to 3 percentage points above what you might qualify for on a conventional mortgage loan. Additionally, bridge loans often incur various transaction fees.

This higher cost is linked to the increased risk for lenders, as there’s a possibility your home may not sell within the expected timeframe. If this occurs, you need to be financially prepared to manage both your mortgage and bridge loan payments simultaneously.

Your specific interest rate will largely depend on factors like your creditworthiness and the type of lender you choose to work with.

How to reduce bridge loan costs

Applying for a bridge loan with the same lender as your new mortgage can reduce costs. In such cases, you might not have to pay extra underwriting or other mortgage fees, as both loans will be processed together.

It’s also beneficial to shop around and compare options. Remember, bridge loans are a short-term solution. Evaluate what’s best for you in terms of total costs, convenience, and suitability for your situation. We’ll explore additional financing options in a later section.

Budget for closing costs

Aside from the loan itself, you’ll also need to budget for closing costs, 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

Bridge loan cost example

Below is an example of how much a $120,000 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 Pennsylvania house to sell. The new home’s asking price is $260,000. You can only come up with $130,000, but you have at least another $120,000 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 Pennsylvania?

In Pennsylvania, not all financial institutions offer bridge loans due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, it’s a good idea to explore various options before applying. Common sources for bridge loans in Pennsylvania include:

• Your mortgage lender: Many people start by inquiring with their current mortgage lender, as existing relationships can sometimes make the process smoother.
• Local banks: Local banks often provide personalized services and may have specific products tailored to the Pennsylvania real estate market.
• Credit unions: These member-owned institutions often offer competitive rates and may have more flexible lending criteria.
• Hard-money lenders: These are hard-money lending companies that provide loans based on the property you’re using as collateral rather than your creditworthiness.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, which can be useful if you don’t qualify for traditional loans.

Additionally, modern real estate companies are increasingly providing services to help bridge the gap between buying and selling homes. We’ll share how this works later in this post.

Are there alternatives to bridge loans in Pennsylvania?

While a bridge loan might not work for every Pennsylvania 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 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: You have the option to borrow against your retirement account and not incur early withdrawal fees. However, 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 Pennsylvania. 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 Pennsylvania 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 Pennsylvania:

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 Pennsylvania 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 Pennsylvania, such as Agent Match, where you can 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 Pennsylvania homeowners

As Pennsylvania homeowners face the challenges of a tight housing market and rising home prices, many are exploring bridge loans as a viable option to streamline the process of buying a new home while selling their old one.

Bridge loans can offer the flexibility you need, allowing you to seize opportunities without the stress of aligning sale and purchase dates perfectly. However, it’s important to weigh the benefits against potential drawbacks like higher interest rates and additional loan costs. Fortunately, there are alternatives and modern solutions available that might suit your unique financial situation better.

Remember, each journey in real estate is unique, and finding the right financial solution is key to a successful transition. Consider HomeLight’s Buy Before You Sell program to remove the uncertainty from your next home purchase. HomeLight can also connect you with a top-performing Pennsylvania buyer’s agent with experience in bridge loans.

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