Bridge Loans in Seattle: 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.
Selling your old home while buying a new one in Seattle can be a challenging balancing act, especially regarding timing and finances. This can be even more difficult in a market where inventory is scarce and home prices are rising. For many homeowners, it might seem like their only option is to sell their current home, move out, and temporarily relocate while house hunting. But what if there was a better way?
Enter the bridge loan — a short-term financing option that lets you purchase your home before you’ve sold your old one. This post will guide you through the ins and outs of bridge loans – the pros, the cons, when you should consider one, and what you can expect throughout the process.
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 Seattle, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan, sometimes referred to as a swing or bridging loan, is a short-term loan that leverages the equity in your current home, providing you with the funds needed for a down payment and closing costs on your new dream home.
This allows you to purchase a new property without the pressure of selling your existing home first. While bridge loans are typically more expensive than a traditional mortgage, speed and ease of use are often worth the extra expense.
How does a bridge loan work in Seattle?
Imagine you’ve found the perfect new home in Seattle, but your current house hasn’t sold yet. Here’s where a bridge loan makes the most sense. It works by using the equity from your existing home to cover the down payment and closing costs for your new property, ensuring you don’t miss out on your dream home due to timing issues.
The lender handling your mortgage for the new home will often manage your bridge loan. They usually require that your current home be actively listed for sale and offer the bridge loan for a period ranging from six months to a year.
One of the most important things your lender will consider is your debt-to-income ratio (DTI). Lenders will calculate this by considering the payments of your existing mortgage, the mortgage for your new home, along with any interest-only payments on the bridge loan. The lender wants to ensure that you are financially stable enough to carry two mortgage payments, along with your bridge loan payments.
However, there’s some flexibility. If your current home is under contract and the buyer’s loan is approved, lenders might only include the mortgage payment for your new home in the DTI calculation. This is so you are not potentially overburdened should your old home take longer to sell.
What are the benefits of a bridge loan in Seattle?
Bridge loans offer several advantages, making them an appealing option for homebuyers transitioning between properties. Here are the main benefits:
- Make a non-contingent offer: Gives you the ability to make a non-contingent offer on your new home, increasing its attractiveness to sellers.
- Single move convenience: You only need to move once, directly from your old home to your new one.
- Easier home preparation: After moving, you can prepare your old home for sale, including necessary repairs and staging, without the stress of living in it.
- No payments during the loan period: Some lenders offer the option of not requiring payments during the bridge loan period.
- Quick action on desired properties: Allows you to quickly act on the right property in Seattle without worrying about the sale status of your current home.
What are the drawbacks of a bridge loan?
While offering flexibility and convenience in the home-buying process, bridge loans also come with several drawbacks. Here are the ones you should be most concerned about:
- Additional loan costs: Expect to encounter extra costs such as underwriting and origination fees.
- Increased financial burden: Managing payments for up to two mortgages plus a bridge loan simultaneously can be financially challenging.
- More challenging qualification process: Qualifying for a bridge loan can be more difficult than a traditional mortgage.
- Potentially slow underwriting: The underwriting process for a bridge loan might take longer than anticipated.
Additionally, lenders will assess the equity in your current home. If you owe more than 80% of its value, you might have a hard time qualifying for a bridge loan.
When is a bridge loan a good solution?
Here are some situations where a bridge loan might make sense:
- You need the equity from your current home to make a down payment on a new one.
- You want to avoid moving twice, and time is a serious factor.
- Your dream home is on the market and you want to act fast.
- Your offers with home sale contingencies have been deal-breakers, and you need immediate purchasing power.
- You aim to sell an empty or staged home, which can often be more profitable and convenient.
- You can’t prepare or stage your current home for sale while still living in it.
What’s required to get a bridge loan in Seattle?
To secure a bridge loan in Seattle, you’ll need to meet certain criteria set by lenders. These requirements are designed to ensure you can handle the financial responsibilities associated with a bridge loan. Here’s what you typically need:
- Qualifying income: Lenders will assess your income to ensure you can handle payments on your existing mortgage, the new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: Ideally, you should have at least 20% equity in your current home, though some lenders may ask for up to 50%.
- Good credit history: A good credit score, usually above 650, is required by most lenders. A higher score can result in better interest rates and terms.
- Your home listed for sale: Some lenders might need proof that your current home is on the market, ensuring it’s likely to sell before the bridge loan term ends.
How much does a bridge loan cost in Seattle?
Bridge loans usually carry a higher interest rate compared to a standard mortgage. You can expect to pay about 1-3 percentage points more than you would for a traditional mortgage loan. Additionally, bridge loans often come with extra transaction fees.
This increased cost is due to the higher risk associated with bridge loans. It’s important to remember that if your home doesn’t sell within the expected timeframe, you might need to start repaying the bridge loan while still covering your mortgage.
The specific rate you’ll receive will largely depend on your credit history 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 help reduce costs. In such cases, you might not need to pay additional underwriting or other mortgage fees, as the bridge loan and new mortgage will be processed together.
Remember, bridge loans are a short-term solution, so consider what’s best for you regarding total costs, convenience, and suitability.
Budget for closing costs
Aside from the loan, you’ll also need to budget for closing costs, legal fees, and administrative charges. 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 $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 Seattle house to sell. The new home’s asking price is $850,000. You can only come up with $650,000, 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.
| Net loan amount | $200,000 | $200,000 |
| Interest (varies) | 10% (example for 6 months) | $10,000 |
| Origination fee | 1.5% | $3,000 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,700 |
*These closing costs typically range between 1.5%-3%
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Who provides bridge loans in Seattle?
In Seattle, not every financial institution offers bridge loans due to their specific underwriting requirements. If you’re considering this type of loan, it’s wise to explore options with various lenders. Here are the most common sources for obtaining a bridge loan:
- Your mortgage lender: Start with the lender who is handling your new mortgage, as they might also offer bridge loans.
- Local banks: Many community and regional banks in Seattle provide bridge loan options.
- Credit unions: Member-owned credit unions often offer competitive bridge loan options.
- Hard-money lenders: These are private lenders who may offer more flexible terms but at higher interest rates.
- Non-qualified mortgage (non-QM) lenders: These lenders specialize in loans that don’t fit conventional mortgage criteria, including bridge loans.
Are there alternatives to bridge loans in Seattle?
While a bridge loan might not work for every Seattle 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 Seattle. 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 Seattle 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 Seattle:
- 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 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.
- Sell your former home with peace of mind: After you move into your new home, work with an 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.
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 Seattle 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’s Buy Before You Sell program is available in most states throughout the country.
HomeLight also offers other services for homebuyers and sellers in Seattle, 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 Seattle homeowners
Bridge loans serve as an alternative for those looking to buy a new home while selling their old one. Bridge loans let you borrow against the equity in your previous home, applying it towards your new purchase. This financial flexibility gives you more time to sell your old home.
However, it’s important to remember that while bridge loans offer convenience and speed, they can be costly and may not be suitable for everyone.
For a more streamlined approach, consider HomeLight’s Buy Before You Sell program. This program is designed to reduce the uncertainty surrounding your next home purchase.
Additionally, HomeLight can connect you with a top-performing Seattle buyer’s agent who has expertise in handling bridge loans, ensuring you have the best guidance for your real estate journey.
Header Image Source: (Thom Milkovic / Unsplash)
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