Bridge Loans in San Diego: How to Unlock Home Equity to Buy Before You Sell

What’s required to get a bridge loan in San Diego?

To qualify for a bridge loan in San Diego, you’ll typically need to meet these requirements:

• Qualifying income: Lenders will assess your income to ensure you can afford payments on your current mortgage, new mortgage, and potentially an interest-only payment on the bridge loan.
• Sufficient equity: You should have at least 20% equity in your current house, though some lenders may require as much as 50%.
• Good credit history: A good credit score, usually above 650, is essential. It influences your interest rate and other loan qualifications, like loan-to-value ratio. The higher your score, the better the terms you might receive.
• Your current home listed for sale: Some lenders may require evidence that your current home is on the market, ensuring it will likely sell before the bridge loan’s term ends.

How much does a bridge loan cost in San Diego?

A bridge loan in San Diego typically carries a higher interest rate compared to a standard mortgage, often ranging from 1-3 percentage points above the rate for which you might qualify on a mortgage. Additionally, bridge loans can incur extra transaction fees.

The elevated cost reflects the increased risk to lenders, given the uncertainty of your current home selling within the required timeframe. If your home doesn’t sell as quickly as anticipated, you must be financially prepared to handle both your mortgage and bridge loan payments.

Your specific rate will depend on your creditworthiness and the lender you choose.

How to reduce bridge loan costs

Applying for a bridge loan with the same lender as your new mortgage can save costs. Typically, you won’t need to pay additional underwriting or mortgage fees since the bridge loan and new mortgage are processed together.

It’s beneficial to compare various options. Remember, bridge loans are meant for short-term use. Evaluate what financing solution aligns best with your needs, considering total costs, convenience, and suitability.

Budget for closing costs

Closing costs, legal, and administrative fees are also part of the equation. These expenses usually 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

These costs should be factored into your overall budget when considering a bridge loan in San Diego.

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 San Diego house to sell. The new home’s asking price is $950,000. You can only come up with $650,000, 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 San Diego?

In San Diego, the availability of bridge loan products might be limited due to their specific underwriting requirements. Interested borrowers should explore various options before applying. The most common sources for bridge loans in San Diego include:

• Your current mortgage lender
• Local banks
• Credit unions
• Hard-money lenders
• Non-qualified mortgage (non-QM) lenders

Additionally, some modern real estate companies specialize in facilitating bridge loans, providing a seamless solution to bridge the gap between buying and selling homes. More details on how this works will be discussed later in this post.

Are there alternatives to bridge loans in San Diego?

While a bridge loan might not work for every San Diego 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 San Diego. 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 San Diego 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 San Diego:

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. Learn more program details at this link.

For San Diego 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 San Diego, 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 San Diego homeowners

As San Diego homeowners contend with a competitive housing market and high property prices, bridge loans emerge as a practical solution for those juggling the purchase of a new home and the sale of their old one.

Bridge loans offer the advantage of borrowing against the equity in your previous home and applying it toward your new purchase. This flexibility provides more time to sell your old home, alleviating much of the stress associated with aligning the timelines perfectly.

While bridge loans can be a highly convenient option during this transition, they also come with higher costs and may not suit everyone’s financial situation.

To navigate these challenges, consider HomeLight’s Buy Before You Sell program. This innovative approach reduces the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-performing San Diego buyer’s agent who is well-versed in bridge loans and alternative financing options.

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