Bridge Loans in San Diego: 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 existing San Diego home while trying to purchase a new one can feel insurmountable. This can be especially tough as the San Diego market is plagued by notoriously low inventory and high prices. You might think your only choice is to sell your current home, find a temporary place to live, and search for your new house. But there’s an alternative you probably haven’t considered — a bridge loan.
A bridge loan is a short-term financial tool that “bridges the income gap”, enabling you to purchase your new home before you’ve sold your old one. This allows you to utilize the equity from your existing property and streamline the transition into your new home without needing temporary housing.
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 Diego, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is a short-term loan that uses the equity you’ve built up in your existing home, providing you with the funds needed for the down payment and closing costs on your new property.
While these loans are typically more expensive than traditional mortgages, in exchange, they offer convenience and expediency when time is of the essence, letting you move forward with your new home purchase in San Diego without the delay of waiting for your old home to sell.
How does a bridge loan work in San Diego?
A typical situation in which a San Diego home buyer might need a bridge loan is when you’re eager to secure your new home, but your current one hasn’t sold yet. To bridge this income gap, you can leverage the equity from your existing home for the down payment and closing costs on your new property.
Typically, the same lender handling your new mortgage will also manage your bridge loan. They usually require that your old home is listed for sale and offer the bridge loan for a period ranging from six months to a year.
One important thing to consider is your debt-to-income ratio (DTI). Your lender will factor in your current mortgage payments, the mortgage on your new home, and any interest-only payments on the bridge loan. Lenders consider your DTI so that they can be confident you can manage payments on both properties if your old home doesn’t sell as quickly as anticipated.
However, if your old home is already under contract with a buyer who has secured their loan, the lender might consider only your new mortgage payment in the DTI calculation.
What are the benefits of a bridge loan in San Diego?
Bridge loans have several benefits, making them an attractive option for homebuyers dealing with the dual challenge of buying and selling homes.
- Make a non-contingent offer on your new home
- Only move once, avoiding temporary housing
- Prepare your old home for sale more effectively after moving out
- Some lenders offer payment-free periods during the loan term
- Act swiftly on desirable properties without your current home’s sale status affecting you
However, there are several downsides to consider.
What are the drawbacks of a bridge loan?
While bridge loans offer several advantages in managing real estate transitions, they also have drawbacks.
- Additional costs, such as underwriting and origination fees
- The financial burden of managing up to two mortgages plus a bridge loan simultaneously
- Tougher qualification criteria compared to traditional mortgage loans
- Potential for slower underwriting processes than expected
Lenders also consider the equity in your current home when determining your borrowing capacity. Qualifying for a bridge loan may be challenging if you owe more than 80% of your home’s value.
When is a bridge loan a good solution?
A bridge loan is not a one-size-fits-all solution in real estate, but it can significantly ease the transition between selling your current home and purchasing a new one for some homeowners.
Scenarios where a bridge loan might be ideal include:
- When you need equity from your current home for a new home’s down payment.
- Avoiding the costs and hassle of a double move and temporary housing.
- Acting quickly when your dream home becomes available, avoiding competitive delays.
- Overcoming the challenge of a home sale contingency in your offer.
- Desiring to sell a staged home, which is often more profitable and easier to sell.
Especially if you cannot prepare or stage your current home for sale while still living in it, a bridge loan can provide the necessary flexibility and financial leverage. It enables you to vacate and stage your home, often leading to a quicker sale at a higher price.
What’s required to get a bridge loan in San Diego?
To qualify for a bridge loan in San Diego, you’ll typically need to meet these requirements:
- Qualifying income: Lenders will assess your income to ensure you can afford payments on your current mortgage, new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: You should have at least 20% equity in your current house, though some lenders may require as much as 50%.
- Good credit history: A good credit score, usually above 650, is essential. It influences your interest rate and other loan qualifications, like loan-to-value ratio. The higher your score, the better the terms you might receive.
- Your current home listed for sale: Some lenders may require evidence that your current home is on the market, ensuring it will likely sell before the bridge loan’s term ends.
How much does a bridge loan cost in San Diego?
A bridge loan in San Diego typically carries a higher interest rate compared to a standard mortgage, often ranging from 1-3 percentage points above the rate for which you might qualify on a mortgage. Additionally, bridge loans can incur extra transaction fees.
The elevated cost reflects the increased risk to lenders, given the uncertainty of your current home selling within the required timeframe. If your home doesn’t sell as quickly as anticipated, you must be financially prepared to handle both your mortgage and bridge loan payments.
Your specific rate will 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 costs. Typically, you won’t need to pay additional underwriting or mortgage fees since the bridge loan and new mortgage are processed together.
It’s beneficial to compare various options. Remember, bridge loans are meant for short-term use. Evaluate what financing solution aligns best with your needs, considering total costs, convenience, and suitability.
Budget for closing costs
Closing costs, legal, and administrative fees are also part of the equation. These expenses usually 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
These costs should be factored into your overall budget when considering a bridge loan in San Diego.
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 Diego house to sell. The new home’s asking price is $900,000. You can only come up with $600,000, 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 Diego Home Worth Now?
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Who provides bridge loans in San Diego?
In San Diego, the availability of bridge loan products might be limited due to their specific underwriting requirements. Interested borrowers should explore various options before applying. The most common sources for bridge loans in San Diego include:
- Your current mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-qualified mortgage (non-QM) lenders
Additionally, some modern real estate companies specialize in facilitating bridge loans, providing a seamless solution to bridge the gap between buying and selling homes. More details on how this works will be discussed later in this post.
Are there alternatives to bridge loans in San Diego?
While a bridge loan might not work for every San Diego 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 Diego. 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 San Diego 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 Diego:
- 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 San Diego 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 Diego, 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 Diego homeowners
As San Diego homeowners contend with a competitive housing market and high property prices, bridge loans emerge as a practical solution for those juggling the purchase of a new home and the sale of their old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home applying it toward your new purchase. This flexibility provides more time to sell your old home, alleviating much of the stress associated with aligning the timelines perfectly.
While bridge loans can be a highly convenient option during this transition, they also come with higher costs and may not suit everyone’s financial situation.
To navigate these challenges, consider HomeLight’s Buy Before You Sell program. This innovative approach reduces the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-performing San Diego buyer’s agent who is well-versed in bridge loans and alternative financing options.
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