Can I Get a Loan Before I Sell My House? Your Guide to Bridge Loans and Other Options

Maybe your family has grown. Maybe youâre relocating for a new job. Maybe youâve just found your dream home. Whatever the case, if you own a home and need to buy a new one, youâre faced with a common dilemma: What should you do first? Is it better to sell your old home or buy your new home first?Â

Conventional wisdom has been that you should always sell your old home first, mostly to eliminate the possibility of getting stuck paying two mortgages. But does that still apply? âWhile it still makes sense for some homebuyers to sell their old home before buying a new one, thatâs rarely the case today,â says Brian Gubernick, Homewardâs Chief Real Estate Officer. âTodayâs homebuyers have more options at their disposal, and they need to carefully consider which option best fits their personal situation.â

Letâs look at the pros and cons of buying before you sell, along with the different options that allow you to do that.

So you’ve found your dream home but haven’t sold your current house yet You don’t want to miss out on this great opportunity, but how can you get a mortgage to buy the new place if you still have an existing home loan? Getting financing before you sell your old home can be tricky, but it is possible with the right strategy and preparation

What is a Bridge Loan and How Does it Work?

A bridge loan is a short-term loan designed to provide homeowners with immediate funds needed for the purchase of a new home before selling their current property Here’s a quick breakdown

Essence of Bridge Financing:

Think of it as a temporary financial bridge that allows you to buy now and sell later. It bridges the gap between the purchase of your new home and the sale of your old home.

How Does a Bridge Loan Work?

With a bridge loan, you’re able to borrow against the equity in your current home to come up with the down payment on the new home. Once you sell your old house, you pay off the bridge loan with the sale proceeds.

Bridge loans are typically structured as 12-month interest-only loans with relatively high rates compared to traditional mortgages.
You’ll need 20-30% equity in your current home to qualify for a bridge loan.
Bridge loans can be risky if your home doesn’t sell quickly since you’ll be paying two mortgages simultaneously.

Weighing the Pros and Cons of Bridge Loans

Bridge loans offer a solution but also come with drawbacks. Let’s explore the key pros and cons:

Pros of Bridge Loans

Buy Now, Sell Later: The main appeal is the ability to purchase your dream home right away before selling your current one. You don’t have to miss out on the perfect home or deal with contingencies.
Use Home Equity: Tap into your existing home equity to finance the down payment on your new home. This allows you to buy even if you don’t have enough liquid cash on hand.
Skip Double Moves: Bridge loans let you avoid temporary housing costs and the hassle of moving twice. You can move straight from your old house into your new one.

Cons of Bridge Loans

Short Repayment Timeframe: You typically only get 6-12 months to pay back the loan, so your home needs to sell quickly.
Higher Interest Rates: Expect to pay a higher interest rate compared to a conventional mortgage, usually around 1-3% higher.
Risk of Paying Two Mortgages: If your home doesn’t sell fast enough, you’ll be stuck paying two mortgages simultaneously which can strain your finances.
Upfront Fees: You’ll have to pay lender fees and closing costs just like any other loan. Plan for 1-5% of the total loan amount.

Bridge Loan Requirements: Can You Qualify?

Bridge lenders have stricter requirements than standard mortgages. Here are some key criteria to qualify:

Credit score: 680+ is recommended, 700+ ideal
Down payment: 20-30% down required
Income & Assets: Strong, steady income and healthy assets/reserves
Home equity: At least 20-30% equity in your current home
Low DTI: Total debt-to-income below 50% preferred

Meeting the requirements can be difficult if your finances are stretched thin. Work on paying down debts and boosting your credit score in advance if needed.

8 Alternatives to Bridge Loans for Buying Before Selling

If you don’t qualify for a bridge loan or want to avoid the risks and fees, here are some other options that may work for you:

1. Cash-Out Refinance

Take out a new mortgage on your current home for more than what you owe and use the extra cash for your new home’s down payment.

2. Home Equity Line of Credit (HELOC)

Similar to a cash-out refinance but more flexible since you only draw what you need.

3. Buy First, Rent Out Old Home

Rent out your current home instead of selling right away. This provides rental income you can use towards your new mortgage.

4. Seller Financing

Ask the seller to finance the purchase themselves by providing a seller-held loan.

5. Delayed Financing

Make an all-cash offer by taking out a short-term hard money loan, then get a standard mortgage after closing.

6. Pay Stub/Bank Statement Loan

Non-traditional mortgages that look at income sources beyond tax returns. May qualify with less down payment.

7. Family Gift

Get help from family members by having them gift you money for the new home’s down payment.

8. Low Down Payment Loan

Programs like FHA, VA, and USDA loans allow down payments as low as 3.5%. Avoid PMI with 5-10% down on a conventional loan.

Tips for Buying Before Selling Successfully

If you decide to buy before listing your current house, keep these tips in mind:

Crunch the numbers – Do a thorough analysis of your financial situation to ensure you can handle both housing payments plus all other monthly expenses.
Prioritize a quick sale – Price your home competitively and make it extra appealing to buyers through staging and repairs.
Explore contingencies – Ask your real estate agent about including contingencies in your purchase offer to protect yourself in case your sale falls through.
Watch interest rates – Consider locking in a rate on your new mortgage to hedge against rises during your transition period.
Line up a rental – Have a temporary housing backup plan ready in case closing timelines don’t match up perfectly.
Automate payments – Set up automatic mortgage payments on both homes to avoid late fees if you lose track of payment dates.

Speak to a Loan Officer to Evaluate Your Options

While challenging, buying before selling is feasible in many situations with careful planning. Speak to a loan officer and real estate agent early on to discuss your choices like bridge loans, contingency offers, and more. They can guide you on the smartest path forward based on your specific financials and home values. With expert help, you can develop a solid game plan to purchase your dream home even if you haven’t sold yet.

Benefits to buying before selling

There are several great reasons to consider buying your new home before selling your old home:

Itâs a sellerâs market and you need to move fast. A sellerâs market is when the demand for homes is greater than the supply of homes available for sale. Since demand is high, a sellerâs market means you have to move quickly to get the home you want. A home sale contingency in your offer may spook the seller or delay the closing so thatâs not an option. Itâs also important to note that waiting to sell your old home until after youâve purchased your new home is less risky in a sellerâs market.Â
Itâs your dream home. You donât want to miss out on the home of your dreams. If youâve found the perfect home for you, you need to make an offer ASAP.Â
Itâs less disruptive. Trying to sell the home youâre living in is challenging. You need to stage it, keep it clean, and leave the house anytime a showing gets scheduled. This is especially hard if you have children and/or pets. If you buy before you sell, all these problems disappear. You can move out before you list the home, get it ready, and skip the showings and open houses.
You can avoid moving twice. If you sell and then buy, you may be stuck moving out of your old home on the buyerâs timeline. For many people, this entails the added expense and inconvenience of putting your stuff in storage and living in temporary housing.

Using a bridge loan

Bridge loans are short-term loans that can enable you to buy a new home before selling your old home. When you take out a bridge loan, you use your existing home as collateral to secure a short-term loan. You typically use this loan for a down payment on a new home or to make payments on your existing home. Terms on bridge loans vary widely, but theyâre typically designed for repayment within six months to three years.Â

Hereâs the problem with bridge loans: theyâre expensive. Due to their short-term nature, bridge loans typically carry much higher interest rates and origination costs than conventional mortgages. Because itâs a separate loan, a bridge loan also comes with its own fees and terms.Â

While bridge loans can work in some situations, theyâre costly and risky. The worst-case scenario is that you could end up with three payments: your old mortgage, your new mortgage, and your bridge loan payment.

Sell My House Myself To Save On Realtor Fees?

FAQ

How to put an offer on a house without selling yours first?

“With a bridge loan in hand, you can make a home purchase offer that’s not contingent on selling your current home,” says Sean Simon, mortgage loan originator at Planet Home Lending. “That will appeal to home sellers who don’t want their home sale to stall while they wait for the buyer’s home to sell.”

Can I use my house as collateral to buy another house?

You can use home equity to buy another house if you have enough of an ownership stake in your residence and meet other eligibility requirements. The most common ways to tap your equity are via a home equity loan or home equity line of credit (HELOC).

Can you sell while having a mortgage?

Yes, you can sell your home even if it has a balance on the existing mortgage. In fact, this is commonplace. Aside from refinances, it’s probably the most common way to pay off a home loan. That’s because more homeowners have a mortgage than own their home outright.

What happens to your mortgage when you sell your house and don’t buy another?

For homeowners planning to sell with an existing mortgage, you’ll want to keep in mind that the outstanding mortgage debt remains after a sale, and the proceeds will typically go towards paying off the remaining balance.

Should you sell a house with a mortgage?

As long as your home is worth more than what you owe the bank, you’ll probably pocket some profit after you’re done paying commissions, fees and closing costs. Follow these three preliminary steps before selling a home with a mortgage. First, ask your mortgage lender about your current mortgage payoff when selling a house.

Can I buy a new home before selling my house?

To buy a new home before you sell your existing house, you need cash and potentially the ability to qualify for a new mortgage while carrying your current loan. For most buyers, the main question is how to raise enough cash for the down payment. Sellers in hot markets benefit from multiple offers and low, quick-moving inventory.

Should you get a bridge loan before selling your home?

If managed properly, bridge loans can offer a range of benefits to homeowners facing the conundrum of buying before selling: Eases the financial strain of double mortgages: A bridge loan can prevent you from juggling two mortgages simultaneously. Instead, you’ll have the bridge loan and the mortgage of your old home until it sells.

Can you buy a house If you Can’t Sell Your House?

Finding tenants: If you can’t sell your current house but still want to move, an agent may be able to find along-term tenant to stay in the home and cover some of your mortgage. Most homeowners can’t afford to buy a new house without selling their current home first or selling and buying atthe same time.