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

For Arizona residents eyeing their next dream home but are cash-strapped before selling their current property, these collective benefits position a bridge loan as a viable solution. Once their old home is sold, the proceeds can seamlessly settle the bridge loan.

What are the drawbacks of a bridge loan?

A bridge loan can undoubtedly be a useful tool for homeowners balancing the intricacies of buying and selling. However, it’s essential to be aware of potential pitfalls, as with any financing option.

Furthermore, beyond just examining your monthly income, lenders will scrutinize the equity in your current home. If you owe more than 80% of its value, securing a bridge loan might be off the table.

When is a bridge loan a good solution?

While bridge loans provide unique benefits, they’re not a one-size-fits-all solution for every real estate dilemma. However, for certain home sellers and buyers, they can significantly ease the process of moving from one property to another.

Consider a bridge loan as a viable solution when:

• Tapping into your home equity is crucial: When the equity built up in your existing home is essential for the down payment on your next residence.
• A single move is your goal: If the idea of staying in temporary lodgings or moving multiple times doesn’t appeal, a bridge loan can provide continuity, allowing you to transition directly from your old home to the new one.
• Your dream home is within reach, but time is of the essence: In an active market, hesitation can mean losing out. A bridge loan equips you to act swiftly and confidently.
• Your offer hinges on no home sale contingencies: If the seller isn’t open to waiting for you to sell your current home, a bridge loan lets you proceed without that string attached.
• Staging or renovating is your game plan: If getting top dollar for your existing home means a significant makeover or staging, it’s easier to execute those enhancements once you’ve relocated.

For those who find themselves in these scenarios, bridge loans can be the key to a smoother and more streamlined property transition.

To qualify for a bridge loan in Arizona, you typically need the following:

• Qualifying income: Lenders will analyze your income to ensure you can manage payments on your existing mortgage, your forthcoming mortgage, and potentially an interest-only bridge loan payment.
• Sufficient equity: Typically, a minimum of 20% equity in your present home is required. However, certain lenders may ask for up to 50% equity.
• Good credit history: Most bridge loan programs and lenders look for a credit score above 650. This score not only helps in approval but can also determine your interest rate and other loan aspects, like the loan-to-value ratio. A higher score is always more advantageous. If you’ve maintained a positive history with your current mortgage lender, it might be worth checking with them for bridge loan options.
• Your current home to be listed for sale: While not always a mandate, some lenders prefer evidence that your current property is actively listed, helping to ensure its sale within the bridge loan’s duration.

How much does a bridge loan cost in Arizona?

Securing a bridge loan in Arizona typically means preparing for a higher interest rate than you would with a conventional mortgage. Rates for bridge loans usually sit between 1-3 percentage points higher than what you might be offered on a standard mortgage loan. On top of that, there are also certain transaction fees associated with bridge loans.

This steeper cost stems from the heightened risk lenders undertake with bridge loans. It’s paramount for borrowers to consider the scenario where the current home doesn’t sell within the expected timeframe. If this occurs, you’ll need the financial capacity to manage both the mortgage and the bridge loan payments concurrently.

Your precise rate is influenced by factors like your credit score and your lender’s specific terms.

How to reduce bridge loan costs

Opting for the same lender for both your bridge loan and your new mortgage can be cost-effective. This usually means you sidestep additional underwriting fees because both loans undergo the approval process simultaneously.

It’s beneficial to compare multiple lenders to find the most favorable terms. Remember, a bridge loan is designed as a temporary solution. Therefore, when evaluating options, look beyond just the costs. Consider factors like convenience and how well a specific financing method aligns with your circumstances. We’ll share additional options in an upcoming section.

Budget for closing costs

It’s essential to remember that, like other loans, bridge loans also come with closing costs, administrative fees, and legal expenses. Generally, these costs range from 1.5% to 3% of the loan’s total value. Here’s what you might encounter:

• 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 $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 Arizona house to sell. The new home’s asking price is $500,000. You can only come up with $200,000, 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 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 Arizona?

In the vast lending landscape of Arizona, not every financial institution offers bridge loan products. The intricate underwriting requirements make it a specialized loan type. But for those on the hunt, various lenders might be considered before locking in an application. The most frequently tapped sources for bridge loans include:

• Your current mortgage lender: Often, your existing mortgage provider may have bridge loan options, especially if you’ve maintained a good relationship and payment history with them.
• Local banks: Some local or regional banks in Arizona offer specialized loan products, like bridge loans, to cater to their community’s needs.
• Credit unions: As member-owned institutions, credit unions often provide a range of loan products tailored to meet their members’ unique financial situations.
• Hard-money lenders: These lenders are typically more willing to accept risks. Thus, they might offer bridge loans, especially for real estate investments or situations with unique challenges.
• Non-qualified mortgage (non-QM) lenders: These lenders cater to borrowers who don’t meet the typical standards for qualified mortgages, often providing more flexible loan products, such as bridge loans.

Additionally, some modern real estate companies in Arizona have streamlined processes to help clients secure bridge loans. This bridges the financial gap that can arise between purchasing a new home and selling the old one. We’ll illustrate how this works later in this post.

While a bridge loan might not work for every Arizona 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 of 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 Arizona. 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 Arizona 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 Arizona:

1. Apply in minutes with no commitment: 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. Buy your dream home with confidence: 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 current home with peace of mind: After you move into your new home, we will 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 Arizona 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 also offers other services for homebuyers and sellers in Arizona, 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 Arizona homeowners

As Arizona homeowners grapple with a stringent real estate market and soaring property values, many are exploring bridge loans to streamline their journey from one home to the next.

Bridge loans empower homeowners by allowing them to leverage the equity they’ve cultivated in their current home, applying it towards their forthcoming purchase. This grants them a more generous window to finalize their sale, mitigating the strain of synchronizing both transactions perfectly.

Though this financial strategy can undeniably simplify the transitional phase for many Arizona homeowners, it comes with its own set of costs and might not be the ideal solution for everyone.

For those keen on eliminating the unpredictability tied to their next property acquisition, HomeLight’s Buy Before You Sell program could be a game-changer. This program is designed to introduce a new level of confidence and ease to the home buying and selling process.

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