Bridge Loans in New York: 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 and buying a new one in New York often involves a tricky balance of timing and funds. This balancing act becomes even more challenging in a market with low inventory and high prices. You might think your only option is to sell your current home, find a temporary place to live, and search for your new dream house.
However, a bridge loan could be the solution you’re looking for. It’s a short-term financing option that helps you purchase a new home in New York before selling your old one, smoothing out the transition and fitting the pieces of your property puzzle together.
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 New York, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is a straightforward concept in the complex world of real estate. It’s a short-term loan that assists homeowners like you in the interim period of buying a new home while still in the process of selling your current one. By leveraging the equity in your existing home, a bridge loan provides the necessary funds for a down payment and covers closing costs on your new property.
While generally more costly than traditional mortgages, bridge loans offer a quick and convenient solution, allowing you to secure your new home without waiting for your old one to sell. Bridge loans are also known by several other names, including bridge financing, bridging loan, interim financing, gap financing, and swing loans, reflecting their role in bridging the gap during your transition.
How does a bridge loan work in New York?
In New York, a typical situation where you find a bridge helpful loan is when you’re ready to buy your new home, but your current one hasn’t sold yet. In this scenario, the equity from your existing New York home is used to cover your new property’s down payment and closing costs.
Often, the lender handling your mortgage for the new home will also 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.
An important factor in this process is your debt-to-income ratio (DTI). This ratio will include your existing mortgage payments on your old home, the mortgage payments on your new New York property, and any interest-only payments on the bridge loan. However, if your old home is already under contract with a buyer who has secured their loan approval, your lender might only consider the mortgage payment of 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 in the bustling New York real estate market.
What are the benefits of a bridge loan in New York?
In New York, where the real estate market can be particularly competitive, bridge loans offer several benefits that make your home-buying experience smoother and more flexible.
- You can make a non-contingent offer: This strengthens your bid in a competitive New York market.
- Only one move is required: Avoid the hassle and cost of temporary housing.
- Prepare your old home for sale later: More time to make your previous home market-ready.
- Potential for no payments during the loan: Some lenders offer this as a feature, easing financial pressure.
- Act quickly on new properties: Don’t miss out on your dream New York home due to unsold current property.
These advantages make bridge loans an appealing option for New York buyers who need financial flexibility before selling their existing home, allowing them to use the sale proceeds to settle the bridge loan.
What are the drawbacks of a bridge loan?
While bridge loans offer unique advantages in managing real estate transactions, they also come with certain drawbacks that are important to consider.
- Additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- Increased financial burden: Juggling payments for two mortgages and a bridge loan can be stressful.
- Stricter qualifying criteria: Getting a bridge loan might be harder than securing a traditional mortgage.
- Potentially slow underwriting process: The approval timeline can be longer than anticipated.
- Equity requirements: Your current home’s equity level is crucial; owing more than 80% of its value could disqualify you.
These factors highlight the importance of carefully assessing your financial situation and the potential risks before opting for a bridge loan.
When is a bridge loan a good solution?
A bridge loan isn’t always the right choice for every real estate situation, but it can significantly ease the transition from your old home to a new one in certain scenarios.
- You need the equity from your current home for a new home’s down payment.
- Avoiding a double move and interim housing is crucial, or bridging sale and purchase timelines is essential.
- Your dream home is on the market, and you must act fast to avoid competitive delays.
- Your offers with a home sale contingency are consistently rejected, and you need immediate purchasing power.
- Selling an empty or staged home which can be more lucrative and convenient.
- You’re unable to prepare or stage your current home for sale while still living in it, perhaps due to needing a significant renovation or a blank slate to achieve the best sale price. A bridge loan can provide the necessary funds and flexibility to move out and make these improvements, potentially increasing your home’s market value and appeal.
What’s required to get a bridge loan in New York?
To qualify for a bridge loan in New York, 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 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 credit score above 650 is usually necessary, influencing your interest rate and other loan terms.
- Home listed for sale: Many lenders require that your current home is on the market, ensuring it’s likely to sell during the bridge loan term.
How much does a bridge loan cost in New York?
In New York, the cost of a bridge loan generally exceeds that of a standard mortgage. Interest rates on bridge loans are typically 1-3 percentage points higher than those for traditional mortgage loans. Additionally, bridge loans may include extra transaction fees.
This higher cost is due to the increased risk lenders take on with bridge loans. It’s important to consider that your current home may not sell within the expected timeframe. If this happens, you must be financially prepared to cover your mortgage and bridge loan payments.
The rate you receive will depend on factors like your credit score and the lender you choose.
How to reduce bridge loan costs
Applying for a bridge loan with your new mortgage’s same lender can reduce costs. In such cases, you might avoid additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to compare different lenders and loan options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option aligns best with your needs, considering total costs, convenience, and suitability.
Budget for closing costs
Apart from the loan itself, you must also budget for closing costs and legal, and administrative fees. These costs typically range from 1.5% to 3% of the loan amount and can include:
- Appraisal fee
- Administration fee
- Escrow fee
- Title policy costs
- Notary fee
- Loan origination fee
Understanding these costs upfront can help you budget effectively for your bridge loan in New York.
Bridge loan cost example
Below is an example of how much a $500,000 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 New York house to sell. The asking price for the new home is $750,000. You can only come up with $250,000, but you have at least another $500,000 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 | $500,000 | $500,000 |
| Interest (varies) | 10% (example for 6 months) | $25,000 |
| Origination fee | 1.5% | $7,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2.47% | $12,350 |
| Total repayable amount | $546,550 |
*These closing costs typically range between 1.5%-3%
What's Your Current Home Worth?
As you make plans to buy a new home, get a value estimate on your current house from HomeLight for free. Our tool analyzes 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 New York?
In New York, the availability of bridge loans may be more limited due to the specific underwriting requirements of this loan type. If you’re considering a bridge loan, exploring options with various lenders is wise. The most common sources for bridge loans in New York 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 New York have programs tailored to local real estate needs, including bridge loans.
- Credit unions: Member-focused credit unions often provide competitive bridge loan options.
- Hard-money lenders: These lenders can be a good source for faster approvals but might come with higher interest rates.
- Non-qualified mortgage (non-QM) lenders: They offer loans that don’t fit the typical federal guidelines, including bridge loans.
Additionally, some modern real estate companies offer services to help you find a bridge loan, streamlining the gap between buying and selling a home. More on this will be discussed later in the post.
Are there alternatives to bridge loans in New York?
While a bridge loan might not work for every New York 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 lets you 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 may 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 has 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 must include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you can 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 New York. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you move to a new home, thereby reducing stress and worry.
With your New York 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 New York:
- 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 New York 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 New York, 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 New York homeowners
As New York homebuyers face the challenges of a tight housing market and rising home prices, many are considering bridge loans 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 more flexibility in timing and reducing the stress of perfectly aligning the sale and purchase of homes.
However, while bridge loans can be a highly convenient option for navigating this transition, they also come with higher costs and may not be suitable for everyone’s financial situation.
If you’re looking for an alternative, consider HomeLight’s Buy Before You Sell program. This program is designed to alleviate the uncertainty of your next home purchase. Additionally, HomeLight can connect you with a top-performing New York buyer’s agent who is experienced in handling bridge loans and other real estate financial solutions.
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