Bridge Loans in Wisconsin: How to Unlock Home Equity to Buy Before You Sell
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Joseph Gordon Associate EditorJoseph Gordon is an Associate Editor with HomeLight. He has seven years of experience reporting on the commercial real estate and insurance industries. He holds an MFA in Creative Writing from the University of San Francisco.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Selling your old home while buying a new one in Wisconsin can often feel like a delicate balancing act. In a market with limited inventory and high prices, aligning the timing and finances for both transactions becomes a significant challenge. For many homeowners in Wisconsin, it might seem that the only option is to sell first, then face the inconvenience of moving to a temporary location while searching for that perfect new home.
However, a strategic alternative could smoothly bridge this gap: a bridge loan. Designed as a short-term financing solution, a bridge loan enables you to purchase your new Wisconsin home before you’ve sold your current one, easing the transition and keeping you on track toward your real estate goals.
Yes, You Can Buy Before You Sell. Why Move Twice?
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
DISCLAIMER: As a friendly reminder, this post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Wisconsin, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
In real estate, a bridge loan is a short-term financial tool designed to aid you during the overlapping period of selling your current home and purchasing a new one. This type of loan leverages the equity in your existing home, providing you with the necessary funds to make a down payment and handle closing costs on your new property.
While they are generally pricier than conventional mortgages, bridge loans offer a swift and practical solution for securing your new home without the delay of waiting for your old house to sell. This financial strategy can be beneficial in fast-paced markets, ensuring you don’t miss out on your ideal home in Wisconsin due to timing issues with your sale.
How does a bridge loan work in Wisconsin?
Imagine you’re a homeowner in Wisconsin, ready to purchase a new property, but your current home hasn’t sold yet. This is where a bridge loan comes into play. It uses the equity from your existing home to cover the down payment and closing costs for your new home, bridging the financial gap between buying and selling.
The lender handling your mortgage for the new home will often manage your bridge loan. They usually require that your current home is actively listed for sale and offer the bridge loan for a period ranging from six months to a year.
In assessing your application, lenders will consider your debt-to-income ratio (DTI). This calculation includes your existing mortgage payments, the payments for the new home, and any interest-only payments on the bridge loan. However, if your current home is under contract with a buyer who has secured loan approval, lenders might only consider the mortgage payment for your new home in the DTI calculation.
This consideration is crucial for lenders to ensure you can comfortably manage payments on both properties should your current home take longer to sell than anticipated.
What are the benefits of a bridge loan in Wisconsin?
In Wisconsin, a bridge loan can offer several advantages, making your home-buying process more flexible and less stressful.
- You can make a non-contingent offer on your new home: This strengthens your bid in a competitive market.
- Only one move is required: Avoid the hassle and cost of temporary housing.
- Prepare your old home for sale at your leisure: More time to enhance your home’s appeal after moving out.
- Potential for no payments during the loan period: Some lenders offer this feature, easing financial pressure.
- Act quickly on desirable properties: Don’t miss out on your dream home due to your current home’s sale status.
These benefits make a bridge loan appealing for Wisconsin buyers needing immediate funds, allowing them to comfortably transition to their new home and settle the loan with proceeds from their previous home’s sale.
What are the drawbacks of a bridge loan?
While a bridge loan offers flexibility and can ease the transition between selling your current home and purchasing a new one, it’s important to consider some potential drawbacks:
- Additional loan costs: Expect underwriting fees, origination fees, and other charges.
- Increased financial burden: Managing payments for up to two mortgages plus a bridge loan can be stressful.
- Stricter qualification criteria: Qualifying for a bridge loan can be tougher than for a traditional mortgage.
- Slower underwriting process: The approval process might take longer than anticipated.
- Equity requirements: Your qualification largely depends on the equity in your current home. Owing more than 80% of its value could be a disqualifier.
Understanding these challenges is crucial in determining whether a bridge loan is the right financial move for you.
When is a bridge loan a good solution?
A bridge loan isn’t a one-size-fits-all solution, but in some scenarios, it can significantly ease the stress of juggling the sale of an old home with the purchase of a new one.
- 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 can often be more lucrative and convenient.
- You’re unable to prepare or stage your current home for sale while still living in it. This could be due to the need for a blank canvas to maximize the sale price, or perhaps significant renovations are required, which would be more feasible once you’ve relocated.
What’s required to get a bridge loan in Wisconsin?
To qualify for a bridge loan in Wisconsin, you typically need to meet the following criteria:
- Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, 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 require up to 50%.
- Good credit history: A favorable credit score, usually above 650, is often required. This score influences your interest rate and other factors like loan-to-value ratio. Higher scores are more advantageous.
- Your current home listed for sale: Some lenders may need proof that your current home is on the market, ensuring it sells before the bridge loan term ends.
How much does a bridge loan cost in Wisconsin?
In Wisconsin, the cost of a bridge loan typically carries a higher interest rate compared to a standard mortgage. Interest rates should be about 1-3 percentage points higher than those for a conventional mortgage loan. Additionally, bridge loans may include various transaction fees.
The elevated cost is due to the increased risk lenders take on with bridge loans. Borrowers need to consider the possibility of their current home not selling within the expected timeframe, which could lead to the need to cover both mortgage and bridge loan payments simultaneously.
The specific rate you receive 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 extra for 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. Evaluate what financing option best suits your needs, considering the total costs, convenience, and suitability for your situation. We’ll explore more options in a later section.
Budget for closing costs
Apart from the loan, you’ll also need to budget for closing costs, legal and administrative fees. These costs typically range from 1.5% to 3% of the loan amount and may include:
- Appraisal fee
- Administration fee
- Escrow fee
- Title policy costs
- Notary fee
- Loan origination fee
Understanding these costs upfront can help you better prepare financially for a bridge loan in Wisconsin.
Bridge loan cost example
Below is an example of how much a $65,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase but still wait for your current Wisconsin house to sell. The asking price for the new home is $300,000. You can only come up with $235,000, but you have at least another $65,000 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.
| Net loan amount | $65,000 | $65,000 |
| Interest (varies) | 10% (example for 6 months) | $3,250 |
| Origination fee | 1.5% | $975 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $1,300 |
| Total repayable amount | $72,225 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Wisconsin Home Worth Now?
Get a near-instant real estate house price estimate from HomeLight for free. Our tool analyzes the records of recently sold homes near you, your home’s last sale price, and other market trends to provide a preliminary range of value in under two minutes.
Who provides bridge loans in Wisconsin?
In Wisconsin, the availability of bridge loans may be more limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring various lending sources before deciding is a good idea. The most common providers of bridge loans include:
- Your mortgage lender: Start with the lender of your current mortgage; they might also offer bridge loans.
- Local banks: Many community banks in Wisconsin provide personalized lending services, including bridge loans.
- Credit unions: Member-owned credit unions often have competitive loan options, potentially including bridge loans.
- Hard-money lenders: These lenders focus on the collateral value rather than borrower creditworthiness and might offer quicker loan approvals.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, possibly including bridge loans.
Some modern real estate companies also offer services to help you find a bridge loan, streamlining 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 Wisconsin?
While a bridge loan might not work for every Wisconsin 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 Wisconsin. 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.
With your Wisconsin 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.
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 Wisconsin:
- 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.
- 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.
- 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.
Benefits of Homelight Buy Before You Sell
- Flexibility in timelines: No need to sync up sale and purchase dates perfectly. This program gives you breathing space to plan your move without feeling hurried.
- Financial peace of mind: Say goodbye to the stress of potential double mortgages or dipping into savings to bridge the gap between homes.
- Enhanced buying power: In a seller’s market, a non-contingent offer can stand out, increasing your chances of landing your dream home.
- Sell for up to 10% more: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to HomeLight transaction data.
For Wisconsin 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 Wisconsin, 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 Wisconsin homeowners
As Wisconsin homeowners face the challenges of a tight housing market and rising home prices, many consider bridge loans a viable solution to simplify the transition between selling their current home and purchasing a new one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing the financial flexibility to make your new purchase. This approach grants you more time to sell your old home, alleviating the pressure of perfect timing.
However, while bridge loans can be a highly convenient option for navigating this period of change, they come with higher costs and may not be suitable for everyone’s financial situation.
For a more streamlined and less uncertain home-buying experience, consider exploring HomeLight’s Buy Before You Sell program. HomeLight can also connect you with a top-performing Wisconsin real estate agent with expertise in bridge loans and other innovative financing solutions. This way, you can confidently and quickly make your next home purchase.
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