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Short-term and renovation

A bridge loan is for a homeowner buying the next home before the current one has sold

A bridge loan is a short-term loan that uses the equity in the home you own to buy the next one before the first has sold, and it is repaid when that sale closes. In San Luis Obispo County a seller with more than one offer can set a contingent one aside, and a bridge loan exists so your offer on the next home does not have to depend on selling this one. It can cost more than a standard mortgage, the term is short, and the risk is yours: if the current home sells slowly, you carry two homes until it does. We arrange bridge loans on the home you live in and on investment property. This page says when that trade is worth making and when it is not.

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The program in one box

What it is
A short-term loan that uses the equity in the home you own to buy the next one before the first has sold. It is repaid when that sale closes.
Who it suits
An owner with real equity, a home that will sell, and an offer to make that cannot wait for the sale.
What secures it
Your current home, the new one, or both. Which depends on the lender and on how much equity is in each.
How it is qualified
On the equity in the home you are selling and on a credible plan for that sale. Federal rules carve only the shortest bridge loans out of the usual ability-to-repay test, a longer one is underwritten like any home loan, and either way a lender may still ask for the full income file.
How it is repaid
From the proceeds when your current home sells. Until then the payments may be interest-only, or deferred and settled out of the sale, depending on the lender.
What it costs
Set by each lender, and it can include a higher rate than a standard mortgage, origination charges, and on a business-purpose bridge loan a prepayment penalty if the sale comes quickly. None of them is priced on this site.
The risk
Carrying two homes if the sale is slow: two payments, two sets of taxes and insurance, and a short-term loan coming due. That is the whole bet, and it has to be looked at squarely before it is made.
Where it is not the answer
Thin equity, or a home that may not sell soon. Then the choices are a home equity line of credit (HELOC) opened before you list, a contingent offer, or selling first and renting back.

What this program is good at

  • Your offer on the next home does not have to be contingent on selling this one, which matters when a seller with more than one offer can set a contingent offer aside.
  • You move once, straight into the next home, instead of selling, renting for a stretch and moving twice.
  • The equity you have built in your current home does the work, instead of sitting locked until the sale closes.
  • It is a tool for one specific gap: a bridge loan you do not need is only a cost.

Who qualifies

What a lender weighs before this program is on the table. A lender can add rules of its own, and those rules can differ from one lender to the next.

The equity in the home you are selling

A bridge loan is sized against the equity in your current home after the mortgage already on it. The less equity there is, the less a bridge loan can do and the more it costs relative to what it does.

A home that will sell, and a plan for selling it

The loan is repaid by the sale, so the sale is the underwriting. A home priced to the market and ready to list is a different file from one that may sit. Expect questions about how it is priced, when it goes on the market, and what the plan is if the first buyer falls through.

Carrying both payments until it closes

Until the sale closes you are responsible for the payment on the home you are leaving, the payment on the home you are buying, and the bridge loan itself, however it is structured.

Which kind of bridge loan it is

A bridge loan on the home you live in, to buy the next home you will live in, is a consumer loan: when it is a closed-end loan from a lender federal rules count as a creditor, it comes with a Loan Estimate and a Closing Disclosure like a standard mortgage. A bridge loan whose money buys or carries a rental or an investment property is a business-purpose loan, outside those consumer rules, with none of the federal disclosures a home loan carries. What decides it is what the money is for, not which property secures it: a loan to buy the home you will live in is a consumer loan whatever it is secured by. Which kind you need changes which lenders can write it.

Where it is not the answer

If the equity is thin or the home may not sell soon, a bridge loan adds cost to a problem it cannot fix. A HELOC opened before you list, a contingent offer written carefully, or selling first and renting back from the buyer may serve you better.

How it works with us

What happens once you get in touch

The steps in order, so you can see what is coming. Nothing here is underwritten until a lender underwrites it.

  1. Tell us about both homes

    What you owe on the home you are leaving, what it should sell for, when it goes on the market, and what you want to buy. No credit pull to have that conversation.

  2. Your loan officer structures it

    If a bridge loan is the right tool, your loan officer goes over which home could secure it and how the payments could run until the sale, as the lender sets them. Your loan officer can write a pre-qualification letter if the file supports one. Whether that offer goes in without a sale contingency is a decision to make with your agent once a lender has committed to the bridge loan, since until then nothing is underwritten.

  3. Close, move, sell, repay

    The bridge loan funds the purchase, you move, your current home sells, and the bridge loan is repaid from the proceeds at that closing.

What people ask about this program

If yours is not here, call us. The useful answer depends on your file.

What is a bridge loan and how does it work?

A bridge loan is a short-term loan that uses the equity in the home you already own to buy the next one before the first has sold. It is secured by your current home, the new home or both, and it is repaid from the proceeds when the current home sells. Until then the payments may be interest-only or deferred until the sale, depending on the lender, and the loan can cost more than a standard mortgage.

Why use a bridge loan instead of making a contingent offer?

Because a seller who has more than one offer can set aside the one that depends on another home selling first. A bridge loan lets you make the offer without that contingency. The trade is cost and risk: the loan can cost more than a standard mortgage, and if your current home sells slowly you carry two homes until it does, so it is worth making only when the sale is likely to be quick and clean.

What happens if my current home does not sell before the bridge loan comes due?

You still owe the bridge loan, and that is the risk the product carries. The options can include an extension, if the lender agrees to one and on its terms, a price cut on the home to get it sold, or refinancing the bridge loan into a longer mortgage if you qualify for one. If none of those happens, the lender's remedy is foreclosure on whichever home secures the loan. None of those is pleasant, so weigh how likely the home is to sell before taking a bridge loan at all.

What are the alternatives to a bridge loan?

Three alternatives to a bridge loan are a HELOC opened on your current home before you list it, a purchase offer that is contingent on your sale, and selling first and then renting back from the buyer or renting elsewhere while you shop. Each gives something up: a lender may decline to open a line of credit on a home that is listed for sale, a contingent offer can be set aside by a seller, and selling first can mean moving twice. Which one is right depends on how much equity you have and how the market is behaving at the time.

How much does a bridge loan cost?

More than a standard mortgage, and the honest answer has parts rather than a number: a higher rate than a mortgage carries, origination charges, and, on a business-purpose bridge loan, possibly a prepayment penalty if the sale comes quickly. We do not publish prices, because they change by lender and by file, and because a figure quoted without the terms around it is a number you cannot use.

Short-term and renovation

Hard money and private money loans

Short-term, asset-based money from private lenders, for a property or a timeline a bank will not take. It costs more.

  • The lender underwrites a property and a plan rather than a full income file, and it sets its own timeline and its own price for that.
  • A property a bank will not lend on in its current condition, a house with no kitchen, a vacant building, raw land, may still find a private lender, because the lender is looking at what it is worth and what it will be worth once the plan is done.
  • It is qualified on the property and the exit rather than on pay stubs. That is because a business-purpose loan on property you do not live in sits outside the federal consumer mortgage rules, not because any lender is doing you a favor, and it is why the purpose on the file has to be true.
More about Hard money

Not government-insured

Conventional loan

A loan for solid credit and income, with private mortgage insurance that does not have to be permanent.

  • Private mortgage insurance does not have to be permanent. On a one-unit home you live in, the Homeowners Protection Act of 1998, subject to its conditions and exceptions, gives you the right to ask for borrower-paid mortgage insurance to come off once the loan is paid down far enough against the home's original value, and requires it to end automatically at a later point on the loan's amortization schedule.
  • It works for a primary residence or an investment property of one to four units, and for a one-unit second home. FHA and VA are built for a home you live in; FHA allows a second home only in narrow hardship cases.
  • There is no federal credit floor on a conventional loan, and Fannie Mae's Desktop Underwriter sets no minimum score of its own: it weighs the credit with its own risk factors and returns what the file needs.
More about Conventional

Above the conforming limit

Jumbo loan

For a loan above the county's conforming limit, where each lender writes its own guidelines.

  • It is a loan for a purchase whose loan amount clears the county's conforming limit.
  • Because jumbo guidelines are set lender by lender, a file one lender turns down can fit another lender's guidelines.
  • Reserves, income documentation and appraisal practice are each set lender by lender, so they are worth settling before a jumbo file goes anywhere.
More about Jumbo

Where this program fits:Buying a homeRefinancingThe county's loan limitsThe Central CoastServices

Side by side:Bridge loan vs HELOC

Published by

California Mortgage Solutions Inc. · Company NMLS #325189

This page is general information about a loan program, not an offer of credit or a commitment to lend. What a lender will do with your file depends on the file.

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Answer a few questions and your loan officer can talk you through which programs could fit your file, including when this one does not.

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