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

These benefits make a bridge loan a particularly appealing option for Iowa homeowners who need financial flexibility before selling their existing home, allowing them to comfortably transition into their new home with the proceeds from the sale.

What are the drawbacks of a bridge loan?

While bridge loans offer a strategic solution for buying a new home before selling your current one, they come with certain drawbacks that are important to consider:

Understanding these potential challenges is crucial in determining whether a bridge loan is the right financial move for your situation.

When is a bridge loan a good solution?

A bridge loan can be an ideal solution in several specific real estate scenarios, particularly when timing and financial flexibility are key factors. Here are some situations where a bridge loan might be the right choice:

• You need the equity from your current home to make a down payment on a new one.
• Affording a double move and interim housing isn’t feasible, making a seamless transition necessary.
• Your ideal home is on the market, and you must act fast to avoid competitive bidding.
• Your offers on new homes keep getting rejected due to home sale contingencies.
• Selling your home empty or staged, which can often be more appealing to buyers and potentially more profitable, is easier when you’ve relocated.

In these cases, a bridge loan provides the necessary financial support to bridge the gap between selling your current home and securing your new one, especially when you cannot prepare or stage it for sale while still living in it. This can be a significant advantage, as well-prepared and staged homes often sell faster and for higher prices.

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

To qualify for a bridge loan in Iowa, there are several key requirements you’ll need to meet:

• Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, new mortgage, and bridge loan payments.
• Sufficient equity: You need at least 20% equity in your current home, though some lenders may require up to 50%.
• Good credit history: A credit score above 650 is typically necessary, with higher scores potentially improving your terms and interest rates.
• Your home listed for sale: Many lenders require that your current home is on the market, ensuring it’s likely to sell within the bridge loan term.

How much does a bridge loan cost in Iowa?

In Iowa, the cost of a bridge loan typically carries a higher interest rate than a standard mortgage. You can expect interest rates to be about 1-3 percentage points higher than regular mortgage loans. Additionally, bridge loans may include various transaction fees.

The reason for these higher costs is the increased risk that lenders take on with bridge loans. It’s important to consider the possibility that your current home may not sell within the expected timeframe. If this happens, you’ll need to be financially prepared to cover your mortgage and bridge loan payments simultaneously.

The specific rate you’ll be offered largely 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 have to pay additional underwriting or other mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s advisable to shop around and compare options. Remember, bridge loans are meant as a short-term solution. Choosing a financing option that not only offers favorable costs but also aligns with your convenience and specific circumstances is crucial.

Understanding these costs upfront will help you budget effectively and avoid any surprises during the bridge loan process.

Bridge loan cost example

Below is an example of how much a $150,000 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 Iowa house to sell. The new home’s asking price is $300,000. You can only come up with $150,000, but you have at least another $150,000 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 Iowa?

In Iowa, not all financial institutions offer bridge loans due to their specific underwriting requirements. If you’re considering this type of loan, exploring options with various lenders is wise. The most common sources for bridge loans in Iowa include:

• Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans to existing customers.
• Local banks: Many community banks in Iowa provide personalized lending services, including bridge loans.
• Credit unions: Member-focused credit unions often offer competitive loan options, including bridge loans.
• Hard-money lenders: These lenders 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 strict federal guidelines for mortgages, including bridge loans.

Additionally, some modern real estate companies offer services to help you find a bridge loan, simplifying the process of bridging 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 Iowa?

While a bridge loan might not work for every Iowa 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 Iowa. 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 Iowa 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 Iowa:

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.

For Iowa 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 Iowa, such as Agent Match to 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 Iowa homeowners

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

Bridge loans offer the advantage of borrowing against the equity in your previous home, providing you with the funds needed for your new purchase. This financial flexibility gives you more time to sell your old home, easing the pressure of perfect timing in a fast-paced market.

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

Consider exploring HomeLight’s Buy Before You Sell program for a more streamlined and less uncertain approach. This innovative option can alleviate much of the stress associated with your next home purchase. Additionally, HomeLight can connect you with a top-performing Iowa buyer’s agent who is experienced in handling bridge loans and other financing solutions.

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