Maximize Equity in Illinois: Bridge Loans Help You Buy Before You Sell

To secure a bridge loan in Illinois, certain criteria typically need to be met. Here’s what lenders usually look for:

• Qualifying income: Lenders will assess your income to ensure you can manage payments on your existing mortgage, your new mortgage, and any bridge loan payments.
• Sufficient equity: You’ll need at least 20% equity in your current home, though some lenders might ask for up to 50%.
• Good credit history: A credit score above 650 is often necessary, influencing your interest rate and loan-to-value ratio. The higher your score, the better your terms might be.
• Current home listed for sale: While not always a requirement, many lenders prefer that your current home is on the market, ensuring its sale by the end of the bridge loan term.

How much does a bridge loan cost in Illinois?

In Illinois, the cost of a bridge loan typically carries a higher interest rate compared to a standard mortgage. You can expect the interest rate to be 1-3 percentage points more than what you would qualify for on a mortgage. Additionally, bridge loans often come with various transaction fees.

The increased cost is a reflection of the higher risk assumed by lenders. It’s important to consider the scenario where your current home doesn’t sell within the expected timeframe, leaving you with the responsibility of covering both your mortgage and bridge loan payments. Therefore, assessing your financial readiness for such a scenario is important.

Your specific rate will largely depend on factors such as your creditworthiness and the lender you choose to work with.

How to reduce bridge loan costs

If you obtain a bridge loan from the same lender as your new mortgage, you might avoid additional underwriting or mortgage fees. This is because both your bridge loan and new mortgage will be processed together. To potentially reduce costs, it’s advisable to compare different lenders and consider the overall financial impact, not just in terms of costs, but also convenience and suitability for your situation. We will explore more financing options in an upcoming section.

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 Illinois house to sell. The new home’s asking price is $300,000. You can only come up with $100,000, 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.

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

Who provides bridge loans in Illinois?

In Illinois, not every financial institution offers bridge loans due to their specific underwriting requirements. However, for those interested in obtaining a bridge loan, there are several types of lenders to consider. Here are the most common sources for bridge loans in the state:

• Your mortgage lender: Often, the lender who handles your mortgage can also provide a bridge loan.
• Local banks: Many community and regional banks in Illinois offer bridge loans with varying terms.
• Credit unions: Member-owned credit unions sometimes provide bridge loans with competitive rates.
• Hard-money lenders: These lenders offer loans based on collateral property value rather than creditworthiness.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet traditional underwriting standards.

While a bridge loan might not work for every Illinois 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.

A creative financing solution for Illinois homeowners

As Illinois homeowners face the challenges of a competitive housing market and elevated home prices, many are discovering that bridge loans offer a practical solution for buying a new home while selling the old one.

Bridge loans provide the opportunity to borrow against the equity in your previous home, giving you the financial flexibility to make your next purchase. This approach eases the pressure of selling your current home quickly, allowing for better timing and less stress.

However, while bridge loans can be highly convenient for navigating this transition, they come with their costs and might not suit everyone’s circumstances. HomeLight can connect you with experienced Illinois real estate agents who specialize in bridge loan transactions, ensuring you have expert guidance every step of the way.

HomeLight also offers 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.

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