Bridge Loans in Ohio: Smart Equity Use to Buy Before You Sell
- Published on
- 14 min read
-
Richard Haddad Managing EditorClose
Richard Haddad Managing EditorRichard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
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.
If you’re juggling the sale of your current Ohio home with the purchase of a new one, it might feel like walking a financial tightrope. This balancing act becomes even more challenging in a market where inventory is low, and prices are high. You might think the only option is to sell your old home, move to a temporary location, and then embark on the hunt for your new home.
However, there’s a financial tool that could be the key to seamlessly aligning these moving parts: a bridge loan — empowering you to purchase your new home before selling your current one.
In this post, we’ll provide insights and tips about bridge loans in Ohio. We’ll also share an overview of a Buy Before You Sell program that can streamline the entire process.
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 Ohio, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan, in the realm of real estate, is akin to a financial stepping stone. It’s designed for homeowners like you who are in the midst of transitioning from your current home to a new one.
Think of it as a temporary loan that taps into the equity of your existing home. This equity is then used to provide you with the necessary funds to make a down payment and handle closing costs on your new home in Ohio.
These loans are generally short-term and, admittedly, can be more costly than traditional mortgages. However, their real advantage lies in their convenience and speed. A bridge loan enables you to proceed with purchasing your new home without the pressure of having to wait for your old home to sell.
How does a bridge loan work in Ohio?
In Ohio, a common scenario where you might find a bridge loan remarkably useful is when you’re eager to secure your new home before your current property has sold.
How a bridge loan unfolds: You can use the equity from your existing house to cover the down payment and closing costs of your new home. This strategy is particularly advantageous in Ohio’s low-inventory housing market, where waiting to sell before buying could mean missing out on your dream home.
The bridge loan provider: Often, the same lender who is handling the mortgage for your new home will also provide your bridge loan. Most lenders will require that your current property is listed for sale. A bridge loan is typically offered for a period of 6–12 months.
The temporary debt juggling act: A key factor in the bridge loan process is your debt-to-income ratio (DTI). Your lender will determine this ratio through an equation that involves the payments on your existing mortgage, the payments for the new house, and any interest-only payments on your bridge loan. However, if your current home already has a signed sales contract and the buyer is pre-approved for their purchase loan, your lender might only consider the mortgage payment of your new property in the DTI calculation.
Lenders want to be confident that you can successfully manage payments on both properties during the transition period. You’ll need to be financially pliable if your current home doesn’t sell right away.
What are the benefits of a bridge loan in Ohio?
Bridge loans in Ohio offer a range of benefits, making them an attractive option for homebuyers managing the transition between selling and buying homes.
- You can make a non-contingent offer: In Ohio’s competitive market, this strengthens your position as a buyer.
- Single move convenience: Avoid the hassle and expense of multiple moves by transitioning directly to your new home.
- Prepare your old home for sale with ease: Once you’ve moved out, you can stage and sell your old home without living in it.
- Possible payment flexibility: Some lenders may offer periods without required payments during the loan term.
- Act quickly on new opportunities: Secure your new home promptly without waiting for your current home to sell.
What are the drawbacks of a bridge loan?
Bridge loans, while offering seamless convenience, come with their own set of drawbacks that are important to consider:
- Additional loan costs: Expect underwriting fees, origination fees, and other expenses associated with bridge loans. (More on loan costs below.)
- Increased financial pressure: You may face the challenge of managing payments for two mortgages plus the bridge loan simultaneously.
- Stricter qualification criteria: Qualifying for a bridge loan can be more demanding than for a traditional mortgage.
- Potential for slower underwriting: Depending on your lender and creditworthiness, the underwriting process for bridge loans can sometimes take longer than expected.
- Equity requirements in your current home: Lenders assess the equity in your existing home; owing more than 80% of its value could disqualify you.
When is a bridge loan a good solution?
A bridge loan might not be the right choice for every real estate situation, but in certain scenarios, it can significantly ease the transition from your current home to a new one. Here are some instances where a bridge loan could be a beneficial solution:
- You need to access the equity from your current home to fund the down payment for a new one.
- Affording a double move and interim housing is financially challenging, or you need to synchronize the sale and purchase timelines.
- Your ideal home has just come on the market, and you wish to act swiftly, avoiding competitive delays.
- Your offers with a home sale contingency have consistently been unsuccessful, and you’re seeking more immediate purchasing power.
- You’re aiming to sell a vacated or staged home, which can be more appealing to buyers and potentially more profitable. This is particularly relevant if you’re unable to adequately prepare or stage your home for sale while still living in it, as an unoccupied and well-staged home often sells faster and at a better price.
What’s required to get a bridge loan in Ohio?
To qualify for a bridge loan in Ohio, there are specific criteria that most lenders will consider:
- Qualifying income: Lenders will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: It’s important to have at least 20% equity in your current home. Some lenders might require as much as 50%.
- Good credit history: A good credit score, typically above 650, is crucial. This not only affects eligibility but also influences your interest rate and other loan terms.
- Your current home listed for sale: Many lenders will need proof that your current home is on the market, to ensure it’s sold before the bridge loan term ends.
How much does a bridge loan cost in Ohio?
The cost of a bridge loan in Ohio typically comes with a higher interest rate than a standard mortgage. Homeowners can expect to pay between 1-3 percentage points more than the rate for a mortgage loan. Additionally, bridge loans typically involve transaction fees.
This increased cost is due to the higher risk associated with bridge loans. As a borrower, it’s important to consider the possibility of your current home not selling within the expected timeframe. If this happens, you’ll need to be financially prepared to handle both your mortgage and bridge loan payments simultaneously.
Your specific bridge loan rate will depend on factors like your credit score and the lender you choose.
How to reduce bridge loan costs
One way to potentially reduce costs is to obtain your bridge loan from the same lender as your new mortgage. This could eliminate the need for separate underwriting or additional mortgage fees, as both your bridge loan and new mortgage will be processed together.
It’s also advisable to compare different lenders and loan options. Remember, bridge loans are meant as a short-term solution, so assess what financing option best suits your situation in terms of cost, convenience, and fit. We’ll explore more alternatives in a later section.
Budget for closing costs
In addition to interest and fees, you’ll also face closing costs and legal or administrative fees with a bridge loan. 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 expenses should be factored into your overall budget when considering a bridge loan in Ohio.
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 Ohio house to sell. The new home’s asking price is $275,000. You can only come up with $75,000, 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 | $500 | $500 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,500 |
*These closing costs typically range between 1.5%-3%
What's Your Ohio Home Worth?
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 Ohio?
In Ohio, not every financial institution offers bridge loans due to their unique underwriting requirements. However, there are several types of lenders where you might find bridge loan products. It’s advisable for interested borrowers to explore various options before making a decision. Common bridge loan lenders in Ohio include:
- Your mortgage lender: Check with the lender of your current mortgage; they might offer bridge loans, especially if you have a good payment history with them.
- Local banks: Many local banking institutions provide bridge loans with varying terms and rates.
- Credit unions: As member-focused organizations, credit unions can offer competitive bridge loan options.
- Hard-money lenders: These are private lenders or groups that offer loans based on property value rather than creditworthiness.
- Non-qualified mortgage (non-QM) lenders: These lenders provide loans that don’t meet traditional underwriting standards, which can include bridge loans.
Additionally, modern real estate companies are increasingly facilitating the process of obtaining bridge loans, streamlining the transition between buying and selling homes. We will delve into how this process works later in this post.
Are there alternatives to bridge loans in Ohio?
While a bridge loan might not work for every Ohio 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 Ohio. 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 Ohio 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 Ohio:
- 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 Ohio 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 Ohio, 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 Ohio homeowners
As Ohio homeowners face the challenges of a tight housing market and elevated home prices, many are considering bridge loans as a viable option to streamline the process of purchasing a new home while selling their old one.
However, it’s important to remember that while bridge loans can be a highly convenient solution for navigating this transition, they may not be suitable for everyone due to their cost and specific requirements.
For those seeking an alternative, consider HomeLight’s Buy Before You Sell program. This innovative solution is designed to alleviate the uncertainties of your next home purchase. HomeLight can also connect you with a seasoned Ohio real estate agent, experienced in navigating the nuances of bridge loans and other home financing options.
Header Image Source: (Carl Schlabach / Unsplash)
