Bridge Loans in Utah: How to Unlock Home Equity to Buy Before You Sell

These combined benefits can make a bridge loan a convenient option for buyers in Utah who are tight on cash before selling their previous home, allowing them to pay off their bridge loan using the proceeds from their sale.

What are the drawbacks of a bridge loan?

While a bridge loan offers notable advantages, especially in providing seamless property transitions, it’s essential to weigh its drawbacks as well. As with any financial product, it comes with its own set of challenges:

Furthermore, lenders will scrutinize not only your monthly earnings but also the equity you hold in your current residence. If the outstanding amount on your present home exceeds 80% of its value, you might not qualify for a bridge loan.

When is a bridge loan a good solution?

While a bridge loan isn’t the go-to for every property transaction, for many Utah homeowners, it provides a crucial link between selling their current home and securing their dream one.

Here are situations where a bridge loan shines as a practical solution:

• 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 want to sell an empty or staged home which can often be more lucrative and convenient.

Given these scenarios, it’s clear that for certain Utah homeowners, a bridge loan can be the perfect catalyst for a smooth real estate transition.

For Utah homeowners considering a bridge loan as a solution to their real estate needs, it’s essential to understand the qualification criteria. While each lender might have unique requirements, the general guidelines to qualify for a bridge loan in Utah are as follows:

• Qualifying income: Lenders will evaluate your income to ensure you can manage payments for both your existing and new mortgages, along with potential interest-only payments on the bridge loan.
• Sufficient equity: Generally, you should hold a minimum of 20% equity in your existing property. However, it’s not uncommon for some Utah lenders to stipulate up to 50% equity.
• Good credit history: A respectable credit score, typically hovering above 650, is a common requirement. This score not only determines your eligibility but can also influence associated terms like interest rates and the loan-to-value ratio. If you’ve been diligent with your current mortgage payments, it might be worth inquiring with your existing lender about their bridge loan offerings.
• Your current home to be listed for sale: Some Utah lenders mandate that your current residence be actively listed for sale, ensuring it’s likely to be sold within the bridge loan’s duration.

How much does a bridge loan cost in Utah?

A bridge loan in Utah often comes with a steeper interest rate compared to conventional mortgages. It’s not uncommon to see rates that are 1-3 percentage points higher than those of a standard mortgage. Additionally, there could be more transaction fees associated with bridge loans.

This cost premium is a reflection of the increased risk posed to lenders. If your current home doesn’t sell within the expected timeline, you might find yourself juggling payments for both your existing mortgage and the bridge loan. Thus, it’s crucial for borrowers to assess their financial stamina and ensure they can comfortably manage potential overlapping payments.

The exact rate you’re offered will often hinge on your credit profile and the specific lender you engage with.

How to reduce bridge loan costs

Teaming up with the same lender for both your bridge loan and your new mortgage might cut down on some costs. Typically, this approach eliminates the need for separate underwriting fees or additional mortgage-related expenses, given that both loans would be processed simultaneously.

Shopping around can also be beneficial. By comparing various offers, you not only gain insight into the associated costs but also gauge the convenience and suitability of each option. We’ll share additional options in an upcoming section.

Budget for closing costs

When factoring in the overall cost of a bridge loan in Utah, don’t overlook closing costs and other associated fees. These expenses typically range from 1.5% to 3% of the total loan amount and might encompass:

• 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 $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 Utah house to sell. The new home’s asking price is $500,000. You can only come up with $200,000, 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.

*These closing costs typically range between 1.5%-3% 

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Who provides bridge loans in Utah?

Due to the underwriting demands for this type of loan, not every financial institution in Utah will offer bridge loan products. Those interested in this financing option should cast a wide net and consult with multiple lenders prior to submitting an application. The most typical sources for bridge loans in Utah include:

• Your mortgage lender
• Local banks
• Credit unions
• Hard-money lenders
• Non-qualified mortgage (non-QM) lenders

In addition to these traditional sources, there are modern real estate companies in Utah that have streamlined the bridge loan process. These companies can effortlessly connect you with a suitable bridge loan, bridging the financial divide between buying and selling a home. We’ll share how this works later in this post.

While a bridge loan might not work for every Utah 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 Utah. 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 Utah agent, HomeLight may be able to 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:

1. 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.

2. 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.

3. 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.

For 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 Utah, 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 Utah homeowners

As Utah homeowners navigate a tight housing market and elevated home prices, many are turning to bridge loans to streamline the transition from one home to another.

Bridge loans empower homeowners in Utah by allowing them to tap into the equity of their current home, facilitating their next purchase.

While bridge loans offer a convenient way for Utah residents to make a home-sale transition, there are additional costs, and might not be suitable for every individual’s financial circumstance.

For those seeking an alternative, HomeLight’s Buy Before You Sell program can be an innovative solution to help take the uncertainty out of your next home purchase. HomeLight can also connect you with a top-performing Utah buyer’s agent with experience in bridge loans.

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