Bridge Loans in North Carolina: 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 North Carolina often presents a tricky balance of timing and funds. In a market where inventory is low and prices are high, synchronizing the sale of your current home with purchasing a new one adds an extra layer of complexity. You might think your only option is to sell, move out, and temporarily live elsewhere while searching for your next house.
But there’s a more streamlined solution that could be just what you’re looking for – a bridge loan. This short-term financing option in North Carolina can help bridge the gap, allowing you to purchase your new home before selling your old one and smoothing out the transition in this significant phase of your life.
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 North Carolina, 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 generally costlier than conventional mortgages, bridge loans are crafted for convenience and speed. They offer a strategic way to purchase your new home in North Carolina without the pressure of waiting for your old home to sell.
How does a bridge loan work in North Carolina?
In North Carolina, a typical situation where you find a bridge helpful loan is when you’re eager to buy a new home, but your current one hasn’t sold yet. Imagine you’ve found your dream home in the Tar Heel State, but the sale of your existing home is still pending. Here, a bridge loan steps in to utilize the equity from your old home, covering the down payment and closing costs for your new abode.
The financial institution handling your new mortgage will often manage your bridge loan. They usually require that your current home is actively listed for sale, offering the bridge loan for a duration ranging from six months up to a year.
An important factor in this scenario is your debt-to-income ratio (DTI). This ratio will include your existing mortgage payments, the payments for the new home, and any interest-only payments on the bridge loan. This comprehensive calculation helps lenders assess your ability to manage payments on both properties simultaneously, a crucial consideration given that your current home might not sell immediately.
In some cases, if your old home is already 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 flexibility can be a significant relief, ensuring lenders are confident in your ability to handle the financial responsibilities during this transitional period.
What are the benefits of a bridge loan in North Carolina?
Bridge loans in North Carolina have several advantages that can make your home-buying experience more flexible and less stressful.
- You can make a non-contingent offer on your new home: This strengthens your buying position in a competitive market.
- Only one move is required: Avoid the hassle and cost of temporary housing by moving directly into your new home.
- Prepare your old home for sale at your leisure: More time to make it market-ready can potentially increase its value.
- Potential for no payments during the loan period: Some lenders offer a payment-free period, easing financial pressure.
- Act quickly on desirable properties: Secure your new home without waiting for your current home to sell.
These benefits make a bridge loan a practical solution for North Carolina buyers who need financial flexibility before accessing the equity from their previous home’s sale.
What are the drawbacks of a bridge loan?
While a bridge loan can be a valuable tool in your home-buying arsenal, it’s important to know its potential drawbacks.
- Additional loan costs: Expect fees like underwriting and origination, which add to the loan’s expense.
- Increased financial burden: Juggling payments for up to two mortgages plus a bridge loan can be financially straining.
- Tougher to qualify: Securing a bridge loan can be more challenging than getting a traditional mortgage.
- Slower underwriting process: The approval 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 its value could be a disqualifier.
When is a bridge loan a good solution?
A bridge loan isn’t always the go-to solution for every real estate situation. Still, depending on your circumstances, it can significantly ease the transition from your old home to a new one.
- You need the equity from your current home for a new home’s down payment.
- Avoiding the cost and hassle of a double move and temporary housing is a priority.
- Your ideal home is on the market, and you must act fast to avoid missing out.
- Home sale contingencies in your offers have been deal-breakers, and you need more immediate buying power.
- You aim to sell your current home empty or staged, which can often appeal to buyers and potentially be more profitable.
When you cannot prepare or stage your current home for sale while still living there, a bridge loan can provide the necessary funds to move into your new home. This allows you to vacate and prepare your old home for the market, potentially leading to a quicker sale and a better selling price.
What’s required to get a bridge loan in North Carolina?
To qualify for a bridge loan in North Carolina, you typically need to meet the following criteria:
- Qualifying income: Your lender will assess your income to ensure you can handle payments on your current mortgage, your new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: At least 20% equity in your current home is necessary, though some lenders may require as much as 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. The higher your score, the better your terms might be.
- Your current home listed for sale: Some lenders require proof that it is on the market, ensuring it’s likely to sell before the bridge loan term ends.
How much does a bridge loan cost in North Carolina?
In North Carolina, the cost of a bridge loan typically carries a higher interest rate compared to a standard mortgage. You can expect interest rates to be about 1-3 percentage points higher than what you might qualify for on a traditional mortgage loan. Additionally, bridge loans often come with extra transaction fees.
The increased cost is due to the higher risk associated with bridge loans. It’s important to consider that your current home may not sell within the expected timeframe, potentially leaving you responsible for your mortgage and bridge loan payments.
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 other 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, so it’s crucial to find an option that offers favorable financial terms and aligns with your specific needs and circumstances.
Budget for closing costs
When budgeting for a bridge loan, don’t forget to account for closing costs and various 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
These fees can add up, so factoring them into your overall financial planning when considering a bridge loan is important.
Bridge loan cost example
Below is an example of how much a $100,000 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 North Carolina house to sell. The asking price for the new home is $400,000. You can only come up with $300,000, but you have at least another $100,000 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 | $100,000 | $100,000 |
| Interest (varies) | 10% (example for 6 months) | $5,000 |
| Origination fee | 1.5% | $1,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $2,000 |
| Total repayable amount | $110,200 |
*These closing costs typically range between 1.5%-3%
What's Your North Carolina Home Worth Now?
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Who provides bridge loans in North Carolina?
In North Carolina, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. Exploring options with various lenders is a good idea if you’re considering a bridge loan. The most common sources for bridge loans in the state include:
- Your mortgage lender: Start with the institution where you have your current mortgage, as they may offer bridge loans to existing customers.
- Local banks: Many community banks in North Carolina provide personalized lending services, including bridge loans.
- Credit unions: Member-owned credit unions often have competitive loan options and may offer more favorable terms.
- Hard-money lenders: These are private investors or companies that offer loans based on property value rather than solely on borrower creditworthiness.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, which can include 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 provided later in the post.
Are there alternatives to bridge loans in North Carolina?
While a bridge loan might not work for every North Carolina 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 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 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 North Carolina. 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 North Carolina 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 North Carolina:
- 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 North Carolina 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 North Carolina, 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 North Carolina homeowners
As North Carolina homebuyers grapple with a competitive housing market and rising home prices, many are considering bridge loans to streamline buying a new home while selling their old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows for more flexibility in timing your sale. This can significantly reduce the stress of aligning the sale of your old home with the purchase of your new one.
However, while bridge loans can offer a convenient solution during this transition, they can also be expensive and unsuitable for everyone’s financial situation.
Consider HomeLight’s Buy Before You Sell program for a more streamlined approach. This innovative option can alleviate the uncertainty surrounding your next home purchase.
Additionally, HomeLight can connect you with a top-performing North Carolina buyer’s agent who is experienced in navigating the complexities of bridge loans and alternative financing solutions.
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