Bridge Loans in Indiana: 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 old home while simultaneously buying a new one in Indiana can often feel like a delicate balancing act. In a market where inventory is limited, and prices are high, syncing the timing and finances of both transactions becomes a significant challenge. For many homeowners, the apparent solution is to sell, move to a temporary location, and search for a new house.
But there’s an alternative that might just be the solution you’re looking for: a bridge loan. This short-term financing option allows you to confidently purchase your new Indiana home before selling your current one, easing the transition and helping you manage this crucial phase in your homeownership journey.
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 Indiana, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan, also known as bridge financing, bridging loan, interim financing, gap financing, or a swing loan, is essentially a financial lifeline for homeowners like you. It’s a short-term loan designed to bridge the gap during the transition period of buying a new home while still selling your current one. This type of loan leverages the equity in your existing home, providing you with the necessary funds to make a down payment and cover closing costs on your new property.
While they are typically more expensive than traditional mortgages, bridge loans offer a swift and convenient solution, allowing you to purchase your new home without waiting for your old one to sell. This financial tool can be a game-changer in ensuring a smooth transition between homes.
How does a bridge loan work in Indiana?
Imagine you’re a homeowner in Indiana, ready to purchase your dream home before selling your current property. This is where a bridge loan comes into play. It uses the equity from your existing home to cover the down payment and closing costs of your new home, creating a financial bridge between the two transactions.
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 offer the bridge loan for a duration ranging from six months to a year.
A critical factor in this scenario is your debt-to-income ratio (DTI). This ratio will include your existing mortgage payments, the payments for the new home, and any interest-only payments on the bridge loan. However, if your current home is under contract and the buyer has secured their loan, the lender might only consider the mortgage payment of your new home in the DTI calculation.
This consideration is crucial because lenders must be confident in your ability to manage payments on both properties should your current home not sell immediately. A bridge loan in Indiana is designed to provide the flexibility and financial support needed during this transitional period, ensuring you can move forward with your new home purchase with greater ease and confidence.
What are the benefits of a bridge loan in Indiana?
A bridge loan can offer several advantages, making your home-buying experience more flexible and less stressful. Here are some key benefits:
- You can make a non-contingent offer on your new home: This strengthens your offer in a competitive market.
- Only one move is required: Avoid the hassle and cost of moving twice.
- Prepare your old home for sale post-move: Enhance your home’s market appeal without the pressure of living there.
- Potential for no payments during the loan period: Some lenders offer this feature, easing your financial burden.
- Act quickly on the right property: Don’t wait for your current home to sell before securing your new one.
These benefits make a bridge loan a practical solution for Indiana buyers who need financial flexibility before selling their existing home, allowing them to use the sale proceeds to settle the bridge loan.
What are the drawbacks of a bridge loan?
While a bridge loan can be a strategic tool for managing the transition between homes, it’s essential to be aware of its potential drawbacks:
- Additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- Increased financial burden: Managing payments for up to two mortgages plus a bridge loan can be stressful.
- Stricter qualification criteria: Qualifying for a bridge loan can be more challenging than for a traditional mortgage.
- Potentially slow underwriting process: The approval process might take longer than anticipated.
- Equity requirements: Lenders 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 always the right choice for every real estate situation, but in some scenarios, it can significantly ease the transition from your old home to your new one. Here are some instances where a bridge loan might be an ideal solution:
- You need the equity from your current home to make a down payment on a new one.
- Affording a double move and interim housing is challenging, and aligning the sale and purchase timelines is crucial.
- Your ideal home is on the market, and you must act fast to avoid competitive delays.
- Your offers with home sale contingencies are consistently rejected, and you need more immediate purchasing power.
- You aim to sell an empty or staged home, which can often appeal to buyers and potentially be more profitable.
In cases like these, a bridge loan can provide the necessary financial flexibility, allowing you to move forward with your new home purchase while your current home is still on the market. This can be particularly good if you cannot prepare or stage your current home for sale while still residing there, as presenting a clean, unoccupied property can sometimes accelerate the sale and potentially increase the selling price.
What’s required to get a bridge loan in Indiana?
To qualify for a bridge loan in Indiana, you typically need to meet the following criteria:
- Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, new mortgage, and the bridge loan.
- 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 credit score above 650 is usually necessary, influencing your interest rate and other loan terms. A higher score is always advantageous.
Your current home listed for sale: Many lenders require that it is on the market, ensuring it’s likely to sell within the bridge loan term.
How much does a bridge loan cost in Indiana?
In Indiana, the cost of a bridge loan generally exceeds that of a standard mortgage. Interest rates on bridge loans are typically 1-3 percentage points higher than those for traditional mortgage loans. Additionally, bridge loans often incur extra transaction fees.
This higher cost is attributed to the increased risk lenders take on with bridge loans. Borrowers need to consider the possibility of their current home not selling within the expected timeframe. If this happens, you should be financially prepared to manage your mortgage and bridge loan payments simultaneously.
The specific rate you’ll receive largely depends 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 lead to cost savings. In such cases, you might not need to pay additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.
It’s advisable to shop around and compare different options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option suits your needs best, considering the total costs, convenience, and suitability for your situation. More alternatives will be discussed in a later section.
Budget for closing costs
You should also budget for closing costs and various legal and administrative fees. These costs 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
Note: A detailed example of how much a $300,000 bridge loan might cost, including possible fees, will be provided in the “Bridge loan cost example” table below.
Bridge loan cost example
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 Indiana house to sell. The asking price for the new home is $360,000. You can only come up with $160,000, 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 selling your new home to another buyer.
| Net loan amount | $200,000 | $200,000 |
| Interest (varies) | 10% (example for 6 months) | $10,000 |
| Origination fee | 1.5% | $3,000 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,700 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Indiana 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 Indiana?
In Indiana, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring options with various lenders is a good idea. The most common sources for bridge loans in Indiana include:
- Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans to existing customers.
- Local banks: Some community banks in Indiana offer bridge loans with terms that might be more flexible than larger institutions.
- Credit unions: Member-owned credit unions often provide competitive loan options, including bridge loans.
- Hard-money lenders: These lenders focus on the collateral value of your property rather than your creditworthiness and can be a quicker funding source.
- Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.
Additionally, modern real estate companies are increasingly facilitating the process of obtaining a bridge loan, streamlining the transition between buying and selling a home. More details on how this works will be shared later in this post.
Are there alternatives to bridge loans in Indiana?
While a bridge loan might not work for every Indiana 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?
Real estate solution companies like HomeLight incorporate bridge loans into convenient programs that simultaneously streamline the process of buying and selling a house in Indiana. 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 Indiana 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 nearby.
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 Indiana:
- 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 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 Indiana 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 Indiana, 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 Indiana homeowners
As Indiana homeowners face the challenges of a tight housing market and rising home prices, many are discovering the benefits of bridge loans 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 time to sell. This can significantly reduce the stress of perfectly aligning the sale and purchase timelines.
However, it’s important to remember that while bridge loans can offer great convenience during this transition, they can also be expensive and may not be the best fit for every situation.
For a more streamlined and potentially less uncertain option, consider HomeLight’s Buy Before You Sell program. This innovative approach can ease the uncertainty of your next home purchase. Additionally, HomeLight can connect you with a top-performing Indiana real estate agent experienced in handling bridge loans and other alternative financing solutions.
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