Bridge Loans in Missouri: 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 home in Missouri and buying a new one often involves a tricky dance of timing and finances. This becomes particularly challenging in a market where homes are scarce, and prices are high. You might think your only choice is to sell your current home, find a temporary place to live, and then hunt for your new dream house.
But what if there was a smoother solution? Enter the bridge loan. This short-term financial tool helps you purchase a new home in Missouri before you’ve sold your old one, fitting the pieces of your property puzzle together in a convenient and practical way.
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 Missouri, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
In real estate, a bridge loan, also known as a swing or bridging loan, is a short-term financing option designed to help homeowners like you. It comes into play during the transition period of buying a new home while selling your current one. Essentially, this loan leverages the equity in your existing home, providing you with the necessary funds to make a down payment and handle closing costs for your new property in Missouri.
While bridge loans are generally more expensive than traditional mortgages, they offer a significant advantage: they enable you to quickly secure your new home in Missouri without waiting for your old home to sell.
How does a bridge loan work in Missouri?
Imagine you’ve found the perfect new home in Missouri, but your current home hasn’t sold yet. This is where a bridge loan comes into play. It allows you to tap into your existing home’s equity to cover the down payment and closing costs for your new property.
Typically, the lender working with you on your new mortgage in Missouri will also handle your bridge loan. They’ll usually require that your current home is listed for sale and offer the bridge loan for a period ranging from six months to a year.
A key factor in this scenario is your debt-to-income ratio (DTI). The lender will calculate this by considering the payments on your existing mortgage, your new home, and any interest-only payments on the bridge loan.
However, if your current home is under contract and the buyer’s loan approval is finalized, your lender might only factor in the mortgage payment for your new home. This consideration is crucial because lenders must ensure you can manage payments on both properties in case your current home doesn’t sell immediately.
What are the benefits of a bridge loan in Missouri?
Bridge loans in Missouri offer several advantages, making them an attractive option for homebuyers in specific situations:
- You can make a non-contingent offer: This strengthens your position in competitive markets, as you can bid on a new home without selling your current one first.
- Only one move is needed: Avoid the hassle and expense of temporary housing by moving directly from your old home to your new one.
- Prepare your old home for sale at leisure: Once you move out, you can take your time to stage and sell your old home, potentially increasing its market value.
- Potential for no payments during the loan period: Some lenders offer a period where you don’t have to make payments on the bridge loan, easing your financial burden.
- Act quickly on the right property: Secure your new Missouri home without the pressure of selling your current one first.
These benefits make a bridge loan a practical solution for Missouri buyers needing financial flexibility before accessing the equity from their previous home’s sale.
What are the drawbacks of a bridge loan?
While bridge loans can offer increased flexibility and ease some of the stress associated with buying a new home and selling your current one, they also come with certain drawbacks:
- Additional loan costs: Expect to pay underwriting fees, origination fees, and other associated costs.
- Increased financial burden: Juggling payments for up to two mortgages and a bridge loan simultaneously can be financially challenging.
- Stricter qualification requirements: Getting approved for a bridge loan can be more complicated than for a traditional mortgage.
- Potentially slower underwriting process: The approval process for a bridge loan might take longer than you expect.
- Equity requirements: Lenders will assess the equity in your current home; owing more than 80% of its value could disqualify you.
When is a bridge loan a good solution?
A bridge loan isn’t a one-size-fits-all solution in real estate, but it can significantly ease the transition between selling an old home and buying a new one for some homeowners. Here are scenarios where a bridge loan might be advantageous:
- You need the equity from your current home to make a down payment on a new one.
- Affording a double move and temporary housing isn’t feasible, making bridging the sale and purchase timelines crucial.
- You’ve found your dream home and must act quickly to avoid losing out in a competitive market.
- Home sale contingencies have hindered your offers, and you need more immediate purchasing power.
- Your goal is to sell your home empty or staged, which can be more profitable and easier to manage. This is especially relevant if preparing or staging your current home for sale is impractical while you’re still living in it. An unoccupied, well-presented home can significantly enhance its appeal and value on the market.
What’s required to get a bridge loan in Missouri?
To qualify for a bridge loan in Missouri, you typically need to meet the following criteria:
- Qualifying income: Lenders will assess your income to ensure you can afford payments on your current mortgage, new mortgage, and bridge loan payments.
- Sufficient equity: You need at least 20% equity in your current home, though some lenders may require as much as 50%.
- Good credit history: A favorable credit score, usually above 650, is often required. Your credit score affects your interest rate and other loan terms.
- Your current home listed for sale: Some lenders may need proof that your current home is on the market, ensuring it’s likely to be sold during the bridge loan term.
How much does a bridge loan cost in Missouri?
In Missouri, a bridge loan typically has a higher interest rate than a standard mortgage. You can expect to pay about 1-3 percentage points more than you might for a regular mortgage loan. Additionally, bridge loans often include various transaction fees.
These higher costs are the increased risk taken on by lenders. If your home doesn’t sell within the expected timeframe, and you need to start making payments on your bridge loan, it’s crucial to be financially prepared to handle your mortgage and bridge loan payments simultaneously.
The specific rate you’ll get largely depends on your creditworthiness and the lender you choose.
How to reduce bridge loan costs
Applying for a bridge loan with your new mortgage’s same lender can reduce costs. In such cases, you might not have to pay additional underwriting or other mortgage-related fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to explore different options and compare them. Remember, bridge loans are meant as a short-term solution. Choose what’s cost-effective, convenient, and suitable for your specific situation. We’ll discuss more alternatives in a later section.
Budget for closing costs
Besides the loan, you’ll also need to budget for closing costs and other legal and 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 $150,000 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 Missouri house to sell. The new home’s asking price is $250,000. You can only come up with $100,000, but you have at least another $150,000 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 | $150,000 | $150,000 |
| Interest (varies) | 10% (example for 6 months) | $7,500 |
| Origination fee | 1.5% | $2,250 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $3,000 |
| Total repayable amount | $164,450 |
*These closing costs typically range between 1.5%-3%
What's Your Current Home Worth?
As you make plans to buy a new home, get a value estimate on your current house from HomeLight for free. Our tool analyzes 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 Missouri?
In Missouri, while not all financial institutions offer bridge loans due to their specific underwriting requirements, there are several places where prospective borrowers can inquire:
- Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans, especially if you have a good payment history.
- Local banks: Many community banks in Missouri provide bridge loans with varying terms and conditions.
- Credit unions: Member-owned credit unions often offer their members competitive rates for bridge loans.
- Hard-money lenders: These lenders can be a source for bridge loans, especially for borrowers looking for more flexible terms.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the standard federal guidelines, including bridge loans.
Some modern real estate companies offer services to help you secure a bridge loan, simplifying the transition between buying and selling a home. More details on this will be discussed later in the post.
Are there alternatives to bridge loans in Missouri?
While a bridge loan might not work for every Missouri 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 lets you pull money out of your property for a relatively low interest rate. Instead of receiving the money immediately, 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 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?
Real estate solution companies like HomeLight incorporate bridge loans into convenient programs that streamline the process of buying and selling a house simultaneously in Missouri. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you complete your move to a new home, thereby reducing stress and worry.
With your Missouri 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 Missouri:
- 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 Missouri 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 Missouri, 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 Missouri homeowners
As Missouri homeowners face the challenges of a dynamic real estate market, bridge loans emerge as a strategic tool for those looking to balance the act of buying a new home while selling the old one. These loans offer the flexibility to leverage the equity in your current home, providing a smoother transition and potentially more negotiating power in a competitive market.
However, it’s important to remember that bridge loans, with their higher costs and specific requirements, may not be the perfect fit for everyone. This is where exploring alternatives becomes crucial. Programs like HomeLight’s Buy Before You Sell offer innovative solutions, streamlining the bridge loan process and offering a more tailored approach to your unique situation.
Ultimately, the right financing option for you in Missouri hinges on a blend of your financial standing, home equity, and plans. With careful consideration and the proper guidance, you can navigate this transition with confidence and ease.
Header Source: (Mark Serafino / Unsplash)
