Bridge Loans in Washington State: How to Unlock Home Equity to Buy Before You Sell

These benefits make a bridge loan a practical solution for Washington state buyers who need financial flexibility before selling their previous home, allowing them to comfortably transition to their new home.

What are the drawbacks of a bridge loan?

While a bridge loan can offer significant advantages in your home-buying and selling journey, it’s important to know its potential drawbacks. Here are some key considerations:

Understanding these drawbacks is crucial in deciding whether a bridge loan is the right financial tool for your situation.

When is a bridge loan a good solution?

A bridge loan isn’t always the go-to option for every home sale or purchase, but it can significantly ease the transition from your old home to a new one in certain scenarios. Here are some situations where a bridge loan might be particularly beneficial:

• You need the equity from your current home for a new home’s down payment.
• You can’t afford a double move and interim housing, or bridging the sale and purchase timelines is essential.
• Your dream home just hit the market, and you want to take immediate action, bypassing competitive delays.
• Your offer’s home sale contingency has been a deal-breaker, and you want immediate purchasing power.
• You want to sell an empty or staged home, which is often more lucrative and convenient. This is especially true if you cannot prepare or stage your current home for sale while still living in it. A bridge loan can provide the funds to move out, allowing you to enhance your home’s appeal and secure a better sale price.

What’s required to get a bridge loan in Washington State?

To qualify for a bridge loan in Washington state, there are several essential requirements you’ll need to meet:

• Qualifying income: Your lender will assess your income to ensure you can manage 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 ask for up to 50%.
• Good credit history: A favorable credit score, usually above 650, is essential. This score influences your interest rate and other factors like loan-to-value ratio. A higher score is always advantageous.

Your current home listed for sale: Some lenders may require evidence that it is on the market, ensuring it’s likely to sell within the bridge loan term.

How much does a bridge loan cost in Washington State?

In Washington state, the cost of a bridge loan is typically higher than that of a standard mortgage. Interest rates for bridge loans are 1-3 percentage points above the rates you qualify for on a traditional mortgage. Additionally, bridge loans can incur extra transaction fees.

This higher cost is due to the increased risk lenders take on with bridge loans. It’s important to consider the possibility of your current home not selling within the expected timeframe, which could lead to the need to cover both mortgage and bridge loan payments simultaneously.

Your specific rate will largely 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 reduce costs. In such cases, you might not need to pay additional underwriting or mortgage fees, as 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 the total costs and the convenience and suitability for your specific situation. We’ll explore more financing options in a later section.

Understanding these costs upfront can help you better prepare financially for the bridge loan process in Washington state.

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 Washington State house to sell. The asking price for the new home is $600,000. You can only come up with $300,000, 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 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 Washington State?

In Washington state, the availability of bridge loans may be more limited due to the specific underwriting requirements of this loan type. If you’re considering a bridge loan, exploring options with various lenders is a good idea. The most common sources for bridge loans include:

• Your mortgage lender: Start with the lender of your current mortgage; they might also offer bridge loans.
• Local banks: Some community banks in Washington state provide bridge loan options to their customers.
• Credit unions: Member-focused credit unions often have competitive bridge loan offerings.
• Hard-money lenders: These can be a source for bridge loans, especially for borrowers with unique financial situations.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the standard federal guidelines, including bridge loans.

Additionally, modern real estate companies are increasingly facilitating the process of securing bridge loans, offering streamlined services to bridge the gap between buying and selling homes. More details on this will be shared later in the post.

Are there alternatives to bridge loans in Washington State?

While a bridge loan might not work for every Washington State 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 lets you pull money out of your property for a relatively low interest rate. Instead of receiving the money immediately, your lender will extend a line of credit for you to borrow against. You may 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 than regular refinances but lower than 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. 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 and second mortgage out simultaneously 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 has 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 must include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you can borrow up to $50,000 for 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 Washington State. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you complete your move to a new home, thereby reducing stress and worry.

With your Washington State 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 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 Washington State:

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 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 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.

HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution for Washington State homeowners caught in the buy-sell conundrum. 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 Washington State, 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 Washington State homeowners

As Washington state homebuyers grapple with a competitive housing market and high property prices, bridge loans are emerging as a popular solution to streamline buying a new home while selling the old one.

Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial buffer that allows more time to sell. This can significantly ease the challenge of synchronizing the sale of your current home with the purchase of your new one.

Bridge loans can be a highly convenient way to manage this transition, but they can also be costly and unsuitable for every homeowner.

For an alternative that reduces the uncertainty of your next home purchase, consider HomeLight’s Buy Before You Sell program. This innovative approach simplifies the bridge loan process, and HomeLight can also connect you with a top-performing Washington state buyer’s agent experienced in bridge loans and other financing options. This way, you can confidently navigate your home-buying and selling journey.

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