Bridge Loans in San Francisco: 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.
Purchasing a home in San Francisco when trying to sell your current one can be a nightmare, especially when trying to sell your current home when purchasing a new one.
This can be even tougher in a city where the inventory is low, and prices are high. You might think your only choice is to sell your home, move out, and then scramble to find a new one, but there’s an alternative you likely haven’t considered — a bridge loan.
A bridge loan is a short-term financing option that allows you to buy a new home before selling your current one. This can be a vital tool in a market like San Francisco, where every minute counts. In this blog post, we’ll guide you through the ins and outs of bridge loans and how they can be the key to unlocking 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 San Francisco, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan can be a financial life raft, helping you navigate the income gap between buying a new home and selling your current one. Consider it a temporary funding source that taps into your existing home’s equity. This loan provides you with the cash needed for a down payment and to cover the closing costs of your new home.
Bridge loans are typically more expensive than traditional mortgages due to their convenience and quick availability. They are designed as a short-term solution, allowing you to move forward with your new purchase without having to wait for your old home to sell.
How does a bridge loan work in San Francisco?
In San Francisco’s competitive real estate landscape, a bridge loan often comes into play when you find your dream home but haven’t sold your current one yet. Using your existing home’s equity, a bridge loan covers your new property’s down payment and closing costs.
The lender for your new mortgage will usually handle the bridge loan. They usually require your current home to be on the market and offer bridge loans for up to a year. A critical factor in this process is your debt-to-income ratio (DTI), which will include payments for your existing mortgage, the new one, and the bridge loan.
However, if your old home is already under contract with a confirmed buyer, lenders might consider only your new mortgage in the DTI calculation. The lender does this to ensure that you’re financially capable of managing payments on both properties if your old home doesn’t sell immediately.
What are the benefits of a bridge loan in San Francisco?
Bridge loans in San Francisco offer several benefits, making them an appealing option for homeowners:
- Make a non-contingent offer on your new home
- Only one move necessary
- Prepare your old home for sale after moving out
- Some lenders offer payment-free periods
- Quickly secure your new property, regardless of your current home’s sale status
These benefits make bridge loans an attractive choice for San Francisco buyers needing quick access to funds before selling their previous home, enabling them to settle their bridge loan using the sale proceeds.
What are the drawbacks of a bridge loan?
While bridge loans can be a boon in certain scenarios, they come with their own set of challenges:
- Higher costs due to additional fees like underwriting and origination
- Financial strain from juggling two mortgages and a bridge loan
- Tougher qualifying criteria than traditional mortgages
- Potentially slow underwriting process
Additionally, lenders consider the equity in your current home to determine your borrowing limit. Qualifying for a bridge loan may be difficult if you owe more than 80% of your home’s value.
When is a bridge loan a good solution?
A bridge loan isn’t a one-size-fits-all solution. Still, it can be ideal in certain situations:
- Needing equity from your current home for the new one’s down payment
- Avoiding a double move and bridging sale-purchase timelines
- Jumping on the opportunity when your dream home becomes available
- Overcoming the hurdle of a home sale contingency in your offer
- Selling an empty or staged home for potentially better returns
What’s required to get a bridge loan in San Francisco?
To secure a bridge loan in San Francisco, you’ll typically need:
- Qualifying income: Lenders assess your income to ensure you can handle payments on your current and new mortgages and potentially the bridge loan.
- Sufficient equity: At least 20% equity in your current home is necessary, though some lenders might require more.
- Good credit history: A credit score above 650 is often required, influencing your interest rate and other factors like the loan-to-value ratio.
- Your current home listed for sale: Some lenders might need proof that your current home is on the market.
How much does a bridge loan cost in San Francisco?
Bridge loans in San Francisco generally have higher interest rates than standard mortgages, often 1-3 percentage points more. They also include additional fees.
The cost reflects the increased risk for lenders, considering your home might not sell as quickly as needed. Being financially prepared for simultaneous mortgage and bridge loan payments is important so you don’t end up unexpectedly underwater.
How to reduce bridge loan costs
Working with the same lender for your bridge loan and new mortgage can save on underwriting and other fees. Shopping around is key to finding the most cost-effective option.
Budget for closing costs
Remember to budget for closing costs and fees, typically 1.5% to 3% of the loan amount, including appraisal, administration, escrow, title policy, notary, and loan origination fees.
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 San Francisco house to sell. The new home’s asking price is $1,200,000. You can only come up with $900,000, 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.
| 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* | 1.02% | $3,060 |
| Total repayable amount | $324,260 |
*These closing costs typically range between 1.5%-3%
How Much Is Your San Francisco 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 San Francisco?
In San Francisco, bridge loans are offered by:
- Your mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-QM lenders
Are there alternatives to bridge loans in San Francisco?
While a bridge loan might not work for every San Francisco 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 San Francisco. 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 San Francisco 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 San Francisco:
- 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’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 San Francisco 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 San Francisco, 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 San Francisco homeowners
As San Francisco homebuyers face a tight housing market and soaring prices, bridge loans are emerging as a popular solution for seamlessly transitioning from an old to a new home. These loans enable homeowners to borrow against their existing home’s equity, offering more time to sell and reducing the hassle of precise timing.
However, bridge loans can be expensive and aren’t suitable for everyone. Alternatives like HomeLight’s Buy Before You Sell program offer innovative solutions, and HomeLight can connect you with experienced San Francisco agents who are well-versed in bridge loans.
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