Bridge Loans in New Jersey: How to Unlock Home Equity to Buy Before You Sell
- Published on
- 15 min read
-
Joseph Gordon Associate EditorClose
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 and buying a new one in New Jersey often involves a tricky balance of timing and funds, especially in a market with low inventory and high prices. You might think your only option is to sell, move out, and temporarily live elsewhere while searching for your new house. This can be a stressful and inconvenient process.
However, there’s a solution that could help align these moving parts more seamlessly: a bridge loan. This short-term financing option is designed to bridge the gap, allowing you to purchase your new home in New Jersey before you’ve sold your old one. It’s a strategy that could transform your home-buying experience, making the transition smoother and more manageable.
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 New Jersey, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan, also known as bridge financing, bridging loan, interim financing, gap financing, or a swing loan, is a financial lifeline for homeowners like you. It’s a short-term loan that comes into play during the transitional period of buying a new home while still selling your current one. The key here is leveraging the equity in your existing home. This equity provides the necessary funds to pay down and cover closing costs for your new home.
While they are typically more expensive than traditional mortgages, bridge loans offer a swift and convenient solution, enabling you to purchase your new home without waiting for your old home to sell. This can be a crucial advantage in fast-moving real estate markets.
How does a bridge loan work in New Jersey?
Imagine you’re a homeowner in New Jersey, ready to purchase your dream home before your current residence has sold. This is where a bridge loan becomes an essential part of your journey. It allows you to use the equity from your existing home to cover your new property’s down payment and closing costs.
The lender managing your mortgage for the new home will often handle your bridge loan. They usually require that your current home is actively listed for sale and typically offer the bridge loan for a duration ranging from six months to a year.
In New Jersey, lenders pay close attention to your debt-to-income ratio (DTI) when assessing your application for a bridge loan. This calculation will include your existing mortgage payments on your current home, the mortgage payments for the new home, and any interest-only payments on the bridge loan. This comprehensive assessment is crucial for lenders to ensure you can comfortably manage payments on both properties, mainly if your current home doesn’t sell immediately.
In some cases, if your existing home is under contract and the buyer has secured final loan approval, your lender might only consider the mortgage payment for your new home in the DTI calculation. This can be a significant relief, as it lowers your apparent financial burden, making it easier to qualify for the bridge loan.
What are the benefits of a bridge loan in New Jersey?
In New Jersey, a bridge loan can offer several advantages that make your home-buying experience more flexible and less stressful. Here are some key benefits:
- Make a non-contingent offer on your new home: This strengthens your buying position, especially in competitive markets.
- You only have to move once: Avoid the hassle and cost of temporary housing between selling and buying.
- You can prepare your old home for sale after moving out: This can potentially increase your old home’s market appeal and value.
- Some lenders don’t require payments during the loan period: This eases your financial burden during the transition.
- You can move on the right property quickly: Don’t miss out on your ideal home due to the sale status of your current property.
These benefits make a bridge loan an appealing option for New Jersey buyers who need financial flexibility before selling their previous home, allowing them to comfortably transition to their new home with the proceeds from their sale.
What are the drawbacks of a bridge loan?
While a bridge loan offers notable advantages in your home-buying journey, it’s important to be aware of its potential drawbacks. Here are some key considerations:
- Additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- Added financial stress: Managing payments for up to two mortgages plus a bridge loan can be challenging.
- Qualifying may be more difficult: Approval criteria for bridge loans can be stricter than for traditional mortgages.
- Underwriting can be slow: The process might take longer than anticipated, potentially affecting your plans.
- Equity requirements: Lenders assess the equity in your current home. If you owe more than 80% of its value, qualifying can be difficult.
Understanding these drawbacks is crucial in evaluating whether a bridge loan is the right financial solution for your home-buying needs.
When is a bridge loan a good solution?
A bridge loan can be an ideal solution in certain real estate scenarios, particularly when timing and financial flexibility are key factors. Here are some situations where a bridge loan might be the right choice:
- 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’re unable to prepare or stage your current home for sale while still living in it. Selling an empty or well-staged home is often more lucrative and convenient, and a bridge loan can provide the necessary funds to move out and stage the home effectively, enhancing its appeal and increasing its market value.
What’s required to get a bridge loan in New Jersey?
To qualify for a bridge loan in New Jersey, 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: You need at least 20% equity in your current home, though some lenders may require up to 50%.
- Good credit history: A favorable credit score, usually above 650, is essential. This influences your interest rate and other factors like loan-to-value ratio. Higher scores are always better.
- Your current home listed for sale: Some lenders may need 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 New Jersey?
In New Jersey, the cost of a bridge loan typically exceeds that of a standard mortgage. Interest rates on bridge loans are generally 1-3 percentage points higher than those for traditional mortgage loans.
Additionally, bridge loans often involve extra transaction fees. This higher cost is attributed to the increased risk for lenders, as there’s always a chance that your current home may not sell within the expected timeframe. If this happens, you must be financially prepared to handle your mortgage and bridge loan payments simultaneously.
The specific rate you’ll be mainly offered depends on your creditworthiness and your chosen lender.
How to reduce bridge loan costs
Applying for a bridge loan with the same lender as your new mortgage can lead to cost savings. In such cases, you might not need to pay additional underwriting or other mortgage fees, as both 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 not just the total costs but also the convenience and suitability for your specific situation. We’ll explore more financing options in a later section.
Budget for closing costs
Apart from the loan, you’ll also need to budget for various closing costs and legal/administrative fees. These 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
Bridge loan cost example
Below is an example of how much a $350,000 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 New Jersey house to sell. The asking price for the new home is $500,000. You can only come up with $150,000, but you have at least another $350,000 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 | $350,000 | $350,000 |
| Interest (varies) | 10% (example for 6 months) | $17,500 |
| Origination fee | 1.5% | $5,250 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $7,000 |
| Total repayable amount | $381,450 |
*These closing costs typically range between 1.5%-3%
How Much Is Your New Jersey 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 New Jersey?
In New Jersey, the availability of bridge loans might be more limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring various lending sources before deciding is a good idea. The most common providers of bridge loans in New Jersey include:
- Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans as part of their services.
- Local banks: Many community banks in New Jersey provide personalized lending services, including bridge loans.
- Credit unions: These member-owned institutions often offer competitive loan options, including bridge loans.
- Hard-money lenders: These are private investors or companies specializing in short-term lending, often at higher interest rates.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including 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 shared later in the post.
Are there alternatives to bridge loans in New Jersey?
While a bridge loan might not work for every New Jersey 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 New Jersey. 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 New Jersey 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 New Jersey:
- 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 New Jersey 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 New Jersey, 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 New Jersey homeowners
As New Jersey homeowners face the challenges of a tight housing market and rising home prices, many are discovering the benefits of bridge loans to ease the transition between selling their current home and purchasing a new one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows more time to sell. This can significantly reduce the stress of perfectly aligning the sale and purchase timelines.
However, while bridge loans can be a highly convenient solution for navigating this period of change, they also come with higher costs. They may not be suitable for everyone’s financial situation.
Consider HomeLight’s Buy Before You Sell program for a more streamlined approach. This innovative solution is designed to alleviate the uncertainties of your next home purchase. Additionally, HomeLight can connect you with a top-performing New Jersey buyer’s agent who is well-versed in bridge loans and other financing options, ensuring you have expert guidance every step of the way.
Header Image Source: (Tracy Jentzsch / Unsplash)
