Bridge Loans in Hawaii: 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.
Navigating the real estate market in Hawaii can often feel like a high-stakes balancing act, especially when you’re trying to sell your old home while buying a new one. This challenge becomes even more daunting in a market where inventory is scarce, and prices are soaring. For many homeowners, it might seem like the only path forward is to sell, temporarily move out, and endure the inconvenience of living elsewhere while hunting for that perfect new home.
But what if there was a smoother way to transition? Enter the bridge loan, a potential game-changer for your real estate strategy. A bridge loan is a short-term financing solution designed to bridge the gap, allowing you to purchase your new Hawaiian dream home before you’ve sold your current one. This could be the key to making your property puzzle pieces fit seamlessly together.
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 Hawaii, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
In real estate, a bridge loan can be a financial life raft that helps you navigate the waters between selling your current home and purchasing a new one. Think of it as a short-term loan that taps into your existing home’s equity, providing the necessary funds to make a down payment and handle closing costs on your new property. This type of loan is beneficial if you’ve found your dream home in Hawaii but haven’t yet sold your current residence.
While bridge loans are generally more expensive than traditional mortgages, they offer a swift and convenient solution, allowing you to purchase your new home without waiting for your old home to sell.
It’s worth noting that bridge loans go by various names, including bridge financing, bridging loans, interim financing, gap financing, and swing loans. Each term refers to the same financial tool designed to help you smoothly transition between homes.
How does a bridge loan work in Hawaii?
Imagine you’ve found the perfect new home in Hawaii, but your current home hasn’t sold yet. This is where a bridge loan comes into play. It allows you to use the equity from your existing home to cover the down payment and closing costs for your new Hawaiian abode.
The lender handling your mortgage for the new home will often manage your bridge loan. They usually require that your current home is actively listed for sale and will typically offer the bridge loan for a period ranging from six months to a year.
In assessing your application, the lender will consider your debt-to-income ratio (DTI). This calculation will include the mortgage payments on your existing home, the payments for the new home, and any interest-only payments on the bridge loan. However, if your current home is already under contract with a buyer who has secured loan approval, the lender might only consider the mortgage payment of your new home in the DTI calculation.
This consideration is crucial for lenders, as they need to be confident in your ability to manage payments on both properties should your current home take longer to sell than anticipated.
What are the benefits of a bridge loan in Hawaii?
In Hawaii, where the real estate market can be as dynamic as its landscapes, a bridge loan offers several advantages that make your home-buying experience smoother and more flexible.
- You can make a non-contingent offer: This strengthens your bid for a new home in Hawaii’s competitive market.
- Only one move is required: Avoid the hassle and cost of temporary housing by moving directly into your new home.
- Prepare your old home for sale at leisure: More time to make your previous home market-ready can increase its value.
- Potential for no payments during the loan period: Some lenders offer this feature, easing your financial burden.
- Act quickly on new opportunities: Secure your new Hawaiian home without waiting for your current home to sell.
These benefits collectively make a bridge loan an appealing option for Hawaii buyers who need financial flexibility before they can sell their existing home, ultimately allowing them to settle the bridge loan with the proceeds from their sale.
What are the drawbacks of a bridge loan?
While a bridge loan can be a strategic tool in your home-buying arsenal, especially in a market like Hawaii, it’s important to be aware of its potential drawbacks. These can impact your financial planning and decision-making process.
- Additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- Increased financial burden: Juggling payments for two mortgages plus a bridge loan can be stressful.
- Stricter qualifying criteria: Getting a bridge loan might be more challenging than securing a traditional mortgage.
- Potentially slow underwriting process: The approval timeline might not meet your expectations or needs.
- Equity requirements: Your eligibility depends on the equity in your current home; owning more than 80% of its value could be a disqualifier.
Understanding these challenges is crucial in determining whether a bridge loan is the right choice for your situation in Hawaii.
When is a bridge loan a good solution?
A bridge loan isn’t always the go-to solution for every home sale or purchase. Still, specific scenarios can significantly ease the transition from your old home to your new one, especially in a unique market like Hawaii.
Consider a bridge loan under these circumstances:
- Equity needs: You need the equity from your current home for the down payment on a new one.
- Affordability is an issue: Affording a double move and interim housing is challenging, or syncing the sale and purchase timelines is crucial.
- Time is of the essence: Your ideal home appears on the market, and immediate action is necessary to avoid competitive delays.
- Non-contingent offers: Your offers with a home sale contingency are consistently rejected, and you need more purchasing power.
- Staging woes: You aim to sell an empty or staged home, which is often more appealing to buyers and potentially more profitable. This is particularly relevant if you cannot prepare or stage your current home for sale while still living in it, as an unoccupied home can be easier to renovate, maintain, and show to potential buyers.
What’s required to get a bridge loan in Hawaii?
To qualify for a bridge loan in Hawaii, you’ll need to meet specific criteria that lenders look for:
- Qualifying income: Lenders 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 to have significant equity in your current home, typically at least 20%, though some lenders may require up to 50%.
- Good credit history: A good credit score, usually above 650, is typically required. This affects your eligibility, interest rate, and other loan terms. If you have a strong payment history, check with your current mortgage lender for potential bridge loan options.
- Home listed for sale: Many lenders require that your current home is on the market, ensuring it’s likely to sell within the bridge loan term.
How much does a bridge loan cost in Hawaii?
A bridge loan in Hawaii typically comes with a higher interest rate than a standard mortgage. You can expect interest rates to be about 1-3 percentage points higher than what you might qualify for on a traditional mortgage loan. Additionally, bridge loans often include extra transaction fees.
This higher cost is due to the increased risk for lenders, as there’s always the possibility that your home may not sell within the expected timeframe. If this happens, you must be financially prepared to handle mortgage and bridge loan payments.
The specific rate you’ll be offered depends on your creditworthiness and the lender you choose.
How to reduce bridge loan costs
One way to potentially reduce costs is by applying for a bridge loan with the same lender handling your new mortgage. This could save you from paying additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s also beneficial to shop around and compare options. Remember, bridge loans are a short-term solution, so it’s important to find the best fit for your financial situation and needs, considering total costs and convenience.
Budget for closing costs
In addition to the loan itself, you’ll need to budget for various closing costs and fees, typically ranging from 1.5% to 3% of the loan amount. These may include:
- Appraisal fee
- Administration fee
- Escrow fee
- Title policy costs
- Notary fee
- Loan origination fee
Understanding these costs upfront will help you better prepare for the overall expense of obtaining a bridge loan in Hawaii.
Bridge loan cost example
Below is an example of how much a $450,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase but still wait for your current Hawaii house to sell. The asking price for the new home is $850,000. You can only come up with $400,000, but you have at least another $450,000 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 | $450,000 | $450,000 |
| Interest (varies) | 10% (example for 6 months) | $22,500 |
| Origination fee | 1.5% | $6,750 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $9,000 |
| Total repayable amount | $489,940 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Hawaii 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 Hawaii?
In Hawaii, the availability of bridge loans may 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 Hawaii include:
- 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 local banks in Hawaii understand the unique real estate market and may offer bridge loan options.
- Credit unions: As member-focused institutions, credit unions can sometimes provide more flexible lending options, including bridge loans.
- Hard-money lenders: These lenders are often more willing to take on the higher risk associated with bridge loans, albeit usually at higher interest rates.
- Non-qualified mortgage (non-QM) lenders: These lenders specialize in loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.
Additionally, modern real estate companies are increasingly offering services to help bridge the gap between buying and selling homes, including assistance in securing bridge loans. We’ll delve into how this works later in the post.
Are there alternatives to bridge loans in Hawaii?
While a bridge loan might not work for every Hawaii 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 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 loans than regular refinances but lower than 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. 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 take a first and second mortgage out simultaneously to fund your new purchase — 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 has 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 must include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you can borrow up to $50,000 for your new purchase.
Are there modern ways to buy a house before I sell?
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 simultaneously in Hawaii. 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 Hawaii 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 near you.
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 Hawaii:
- 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 approved, you’ll have access to a portion of your equity in your current home. You can 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 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 Hawaii 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 Hawaii, 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 Hawaii homeowners
As Hawaii’s homeowners navigate the complexities of a tight housing market and elevated home prices, many consider bridge loans a viable option to streamline buying a new home while selling their old one.
Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows for more flexibility in timing your sale. This can significantly reduce the stress of aligning the sale of your current home with purchasing your new one.
However, while bridge loans can be a highly convenient solution for transitioning between homes, they also come with higher costs and may not be suitable for everyone’s financial situation.
For a more streamlined and potentially less stressful alternative, consider HomeLight’s Buy Before You Sell program. This innovative approach is designed to ease the uncertainty of purchasing your next home. Additionally, HomeLight can connect you with a top-performing real estate agent in Hawaii who has expertise in navigating bridge loans and other financing solutions.
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