Bridge Loans in Dallas: 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 looking for a new one in Dallas can be difficult, especially when juggling the complex timing and limited finances. This can be even more difficult in a market like Dallas, where inventory is scarce and prices are soaring.
However, there’s a solution that you may not have considered: a bridge loan. A bridge loan is a short-term financial tool designed to “bridge the gap,” enabling you to purchase a new home before you’ve sold your current residence.
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 Dallas, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge is a short-term loan crafted to assist you during the delicate period of purchasing a new home while you sell your existing one. Bridge loans rely on equity in your current home. This equity is utilized to provide the necessary funds for a down payment and to cover closing costs on your new property.
Though they generally come with higher costs than traditional mortgages, bridge loans offer speed and convenience in exchange for a more expensive rate.
How does a bridge loan work in Dallas?
A typical situation where you might consider a bridge loan is when you’re eager to secure your new dream home before your current one has found a buyer. This is where the equity from your old home plays a crucial role, helping to cover the down payment and closing costs for your new purchase.
The same lender handling your new mortgage in Dallas will often manage your bridge loan. They usually require that your existing home be actively listed for sale, offering the bridge loan for six months up to a year.
One important factor that lenders will factor in is your debt-to-income ratio (DTI). This calculation considers the payments on your current home, the mortgage for your new home, 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, your lender might only factor in your new home’s mortgage.
This is so the lender can ensure that you can comfortably handle the payments for both properties, providing a safety net in case your current home doesn’t sell immediately.
What are the benefits of a bridge loan in Dallas?
Bridge loans offer several advantages that can make your home-buying experience in Dallas less stressful.
- You can make a non-contingent offer on your new home
- Only one move is necessary, saving time and resources
- Opportunity to prepare your old home for sale after moving, including staging
- Some lenders may not require payments during the loan period
- You can act quickly on a desirable property, regardless of your current home’s sale status
What are the drawbacks of a bridge loan?
While a bridge loan can be a convenient solution during your home buying and selling process, it’s important to consider its potential drawbacks:
- Additional costs, such as underwriting and origination fees
- Increased financial pressure from simultaneous payments on two mortgages and a bridge loan
- Stricter qualifying criteria compared to traditional mortgage loans
- Potential for a slower underwriting process than expected
Lenders will assess your current home’s equity and monthly income to determine your borrowing eligibility. If your home’s debt exceeds 80% of its value, you might face challenges in qualifying for a bridge loan.
When is a bridge loan a good solution?
A bridge loan isn’t always the perfect choice for every real estate situation, but it can significantly ease the transition from your old home to a new one in certain scenarios.
- Needed equity from your current home to fund the down payment for a new one
- Avoiding the cost and hassle of a double move and interim housing
- Acting fast on a dream home that just came on the market
- Overcoming the obstacle of a home sale contingency in your offer
- Selling a staged home which is often more appealing and profitable
If you cannot prepare or stage your current home for sale while still living in it, a bridge loan offers the financial leeway to move out, allowing for strong staging that could enhance your home’s market appeal and potentially increase its sale value.
What’s required to get a bridge loan in Dallas?
To qualify for a bridge loan in Dallas, you typically need the following:
- Qualifying income: Your lender will assess your income to ensure you can handle payments on your current mortgage, your new mortgage, and a possible interest-only payment on the bridge loan.
- Sufficient equity: At least 20% equity in your current home is necessary, though some lenders may ask for up to 50%.
- Good credit history: A favorable credit score, usually above 650, is required. This affects your interest rate and other terms. Check with your current mortgage lender, who might offer existing clients bridge loans.
- Your current home listed for sale: Some lenders may need proof that your current home is on the market to ensure its sale by the end of the bridge loan term.
How much does a bridge loan cost in Dallas?
The cost of a bridge loan in Dallas is typically higher than that of a standard mortgage. You can expect interest rates to be about 1-3 percentage points higher than mortgage loan rates. Additionally, bridge loans often come with extra transaction fees.
This increased cost reflects the higher risk lenders take with bridge loans, especially if your current home doesn’t sell within the expected timeframe. In such a scenario, being financially prepared to handle your mortgage and bridge loan payments is crucial.
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 save you money. You may 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 to find the best financing option regarding total cost convenience and suitability for your situation. We’ll explore more options in a later section.
Budget for closing costs
When taking out a bridge loan, you must account for closing costs, legal fees, and administrative charges. 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
Considering these costs is essential in planning your finances for a bridge loan in Dallas.
Bridge loan cost example
Below is an example of how much a $200,000 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 Houston house to sell. The new home’s asking price is $350,000. You can only come up with $150,000, but you have at least another $200,000 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 | $200,000 | $200,000 |
| Interest (varies) | 10% (example for 6 months) | $10,000 |
| Origination fee | 1.5% | $3,000 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,700 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Dallas 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 Dallas?
In Dallas, the availability of bridge loans may be more limited due to the specific underwriting requirements of this type of loan. It’s a good idea for interested borrowers to explore various options before applying. The most common sources for bridge loans include:
- Your mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-qualified mortgage (non-QM) lenders
Additionally, modern real estate companies are increasingly offering services to help find bridge loans, streamlining the process of bridging 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 Dallas?
While a bridge loan might not work for every Dallas 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 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 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 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 Dallas. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you successfully move to a new home, reducing stress and worry.
With your Dallas 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 Dallas:
- 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 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 Dallas homeowners caught in the buy-sell conundrum. Learn more program details at this link.
HomeLight also offers other services for homebuyers and sellers in Dallas, 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 Dallas homeowners
As Dallas homebuyers face a competitive housing market with high home prices, many are finding bridge loans to be useful in managing the transition between selling their current home and purchasing a new one.
Bridge loans allow homeowners to leverage the equity in their previous home for their new purchase, providing more time to sell and easing the stress of precise timing.
However, while this financing option offers convenience during this transitional phase, it’s important to note that it can be costly and may not suit everyone’s needs.
Consider the Buy Before You Sell program by HomeLight for a more streamlined approach. This program aims to reduce the uncertainties in your home-buying journey. Additionally, HomeLight can connect you with a top-performing Dallas buyer’s agent who is experienced in navigating bridge loans and other financing solutions.
Header Image Source: (trungnguyen / DepositPhotos)
