Bridge Loans in Washington State: 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.
Balancing the sale of your old home with purchasing a new one in Washington state can be tricky, especially in a market where homes are scarce and prices are high. You might feel cornered into selling first and then facing the hassle of finding a temporary place to stay while you search for your next home.
However, there’s a solution that could simplify this complex situation: a bridge loan. This short-term financing option is designed to help you bridge the gap, allowing you to buy your new home in Washington state before you’ve sold your current one. Let’s explore how a bridge loan could perfectly fit your home-buying and selling journey.
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 Washington State, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is like a financial stepping stone in real estate. It’s a short-term loan that helps you, the homeowner, manage the transition of buying a new home while you’re still selling your current one. It taps into your existing home’s equity, providing you with the necessary funds for a down payment and covering closing costs on your new property.
While bridge loans are generally more expensive than traditional mortgages, they offer a swift and convenient solution, enabling you to purchase your new home without waiting for your old home to sell. Also known as bridging loans, swing loans, or gap financing, these loans are designed to ‘bridge’ the financial gap during your home transition.
How does a bridge loan work in Washington State?
Imagine you’re a homeowner in Washington state, ready to move into your dream home, but your current house hasn’t sold yet. This is where a bridge loan comes into play. It’s designed to use the equity from your existing home to help cover your new home’s down payment and closing costs, bridging the financial gap between buying and selling.
The lender working with you on your new mortgage will often manage your bridge loan. They’ll typically require that your current home is actively listed for sale and will offer the bridge loan for a period ranging from six months to a year.
An important factor in this scenario is your debt-to-income ratio (DTI). Lenders will calculate this by considering the payments on your existing mortgage, your new home, and any interest-only payments on the bridge loan. This calculation helps the lender assess your ability to handle payments on both properties simultaneously, a crucial consideration in case your current home doesn’t sell immediately.
In some cases, if your old home is already under contract with a buyer who has secured loan approval, the lender might only factor in the mortgage payment for your new home. This flexibility can be a significant relief, ensuring you’re not overstretched financially during the transition period.
What are the benefits of a bridge loan in Washington State?
In Washington state, a bridge loan can offer several advantages, making your home-buying experience more flexible and less stressful. Here are some key benefits:
- Non-contingent offer: This strengthens your offer in a competitive market.
- One move: Avoid the hassle and cost of temporary housing.
- Prepare old home: Enhance your home’s appeal without juggling living there.
- Less financial pressure: Lenders might not require payments during the loan period, which eases financial pressure while you transition.
- Move on the right property quickly: Don’t miss out on your dream home due to the sale status of your current one.
These benefits make a bridge loan a practical solution for Washington state buyers who need financial flexibility before selling their previous home, allowing them to comfortably transition to their new home.
What are the drawbacks of a bridge loan?
While a bridge loan can offer significant advantages in your home-buying and selling journey, it’s important to know its potential drawbacks. Here are some key considerations:
- Additional loan costs: Expect underwriting fees, origination fees, and other charges.
- Added financial stress: Managing payments for up to two mortgages plus a bridge loan can be challenging.
- Qualifying may be more difficult: Approval criteria can be stricter than traditional mortgage loans.
- Underwriting can be slow: The process might take longer than anticipated, affecting your plans.
- Equity requirements: Your qualification depends on the equity in your current home. Owing more than 80% of your home’s value could be a disqualifier.
Understanding these drawbacks is crucial in deciding whether a bridge loan is the right financial tool for your situation.
When is a bridge loan a good solution?
A bridge loan isn’t always the go-to option for every home sale or purchase, but it can significantly ease the transition from your old home to a new one in certain scenarios. Here are some situations where a bridge loan might be particularly beneficial:
- 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 is often more lucrative and convenient. This is especially true if you cannot prepare or stage your current home for sale while still living in it. A bridge loan can provide the funds to move out, allowing you to enhance your home’s appeal and secure a better sale price.
What’s required to get a bridge loan in Washington State?
To qualify for a bridge loan in Washington state, there are several essential requirements you’ll need to meet:
- Qualifying income: Your lender will assess your income to ensure you can manage payments on your current mortgage, your 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 ask for up to 50%.
- Good credit history: A favorable credit score, usually above 650, is essential. This score influences your interest rate and other factors like loan-to-value ratio. A higher score is always advantageous.
Your current home listed for sale: Some lenders may require evidence that it is on the market, ensuring it’s likely to sell within the bridge loan term.
How much does a bridge loan cost in Washington State?
In Washington state, the cost of a bridge loan is typically higher than that of a standard mortgage. Interest rates for bridge loans are 1-3 percentage points above the rates you qualify for on a traditional mortgage. Additionally, bridge loans can incur extra transaction fees.
This higher cost is due to the increased risk lenders take on with bridge loans. It’s important to consider the possibility of your current home not selling within the expected timeframe, which could lead to the need to cover both mortgage and bridge loan payments simultaneously.
Your specific rate 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 additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to compare different lenders and bridge loan options. Remember, bridge loans are meant as a short-term solution. Evaluate the total costs and the convenience and suitability for your specific situation. We’ll explore more financing options in a later section.
Budget for closing costs
Besides the loan, you’ll also need to budget for closing costs and various 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 better prepare financially for the bridge loan process in Washington state.
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 Washington State house to sell. The asking price for the new home is $600,000. You can only come up with $300,000, 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 selling your new home to another buyer.
| Net loan amount | $300,000 | $300,000 |
| Interest (varies) | 10% (example for 6 months) | $15,000 |
| Origination fee | 1.5% | $4,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $6,000 |
| Total repayable amount | $327,200 |
*These closing costs typically range between 1.5%-3%
What's Your Washington State Home Worth?
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Who provides bridge loans in Washington State?
In Washington state, 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 a good idea. The most common sources for bridge loans include:
- Your mortgage lender: Start with the lender of your current mortgage; they might also offer bridge loans.
- Local banks: Some community banks in Washington state provide bridge loan options to their customers.
- Credit unions: Member-focused credit unions often have competitive bridge loan offerings.
- Hard-money lenders: These can be a source for bridge loans, especially for borrowers with unique financial situations.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the standard federal guidelines, including bridge loans.
Additionally, modern real estate companies are increasingly facilitating the process of securing bridge loans, offering streamlined services to bridge the gap between buying and selling homes. More details on this will be shared later in the post.
Are there alternatives to bridge loans in Washington State?
While a bridge loan might not work for every Washington State 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 immediately, 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 than regular refinances but lower than 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. 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 and second mortgage out simultaneously 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 for 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 Washington State. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you complete your move to a new home, thereby reducing stress and worry.
With your Washington State 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 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 Washington State:
- 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 approved, you’ll have access to a portion of your equity in your current home. You can 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 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.
HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution for Washington State homeowners caught in the buy-sell conundrum. Learn more program details at this link.
HomeLight also offers other services for homebuyers and sellers in Washington State, 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 Washington State homeowners
As Washington state homebuyers grapple with a competitive housing market and high property prices, bridge loans are emerging as a popular solution to streamline buying a new home while selling the old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial buffer that allows more time to sell. This can significantly ease the challenge of synchronizing the sale of your current home with the purchase of your new one.
However, bridge loans can be a highly convenient way to manage this transition, but they can also be costly and unsuitable for every homeowner.
For an alternative that reduces the uncertainty of your next home purchase, consider HomeLight’s Buy Before You Sell program. This innovative approach simplifies the bridge loan process, and HomeLight can also connect you with a top-performing Washington state buyer’s agent experienced in bridge loans and other financing options. This way, you can confidently navigate your home-buying and selling journey.
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