Bridge Loans in Connecticut: 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.
Are you a Connecticut homeowner caught in the challenging dance of selling your old home and buying your new one? You’re not alone. In the Nutmeg State, where housing inventory is often tight, and prices can soar, finding the right timing and funds to make your move can feel like a juggling act.
Picture this: you’ve found your dream home, but your current one hasn’t sold yet. The prospect of selling, moving out, and scrambling to secure temporary housing while you shop for a new house can be daunting. That’s where a bridge loan in Connecticut can be your saving grace.
A bridge loan is your short-term financial bridge, designed to help you purchase that new home while your old one is still on the market. In this blog post, we’ll guide you through the ins and outs of bridge loans in Connecticut, exploring their benefits, drawbacks, and alternative solutions, including HomeLight’s innovative Buy Before You Sell program.
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 Connecticut, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
Simply put, a bridge loan in Connecticut is your go-to financial tool when selling your current home and eyeing a new one. Think of it as your bridge that connects your existing home to your dream home.
Here’s how it works: Your bridge loan, also known as a swing or bridging loan, leverages the equity you’ve built up in your current home. It hands you the cash needed for a down payment and covers those pesky closing costs on your new purchase. Bridge loans can be pricier than regular mortgages, but they’re designed to be your speedy and hassle-free ticket to that new home.
With a bridge loan, you won’t have to twiddle your thumbs waiting for your old home to sell. It’s your shortcut to homeownership bliss in Connecticut.
How does a bridge loan work in Connecticut?
Picture this scenario in the heart of Connecticut’s real estate market: You’ve set your sights on that perfect new home, but your old one hasn’t found its next owner yet. It’s a common situation that many homeowners face, and that’s where a bridge loan comes into play.
When you need to secure your new property before your current one gets snapped up, a bridge loan taps into the equity you’ve built in your previous home. It’s like unlocking the treasure chest that holds your down payment and covers those essential closing costs for your fresh start.
Here’s the catch: The lender providing your new mortgage will often be your bridge loan buddy. They typically want to see your old home listed on the market and may offer you this bridge loan lifeline for a period ranging from six months to a year.
Now, let’s talk numbers. Your lender might need to crunch the numbers and calculate your debt-to-income ratio (DTI). That means factoring in your current mortgage payments for your old house, your shiny new mortgage payment for the home you’re buying, and, if applicable, the interest-only payment on your bridge loan. It’s all about ensuring you can comfortably handle payments on both properties if your old home doesn’t find its new owner immediately.
To help you understand the financial aspects, check out these handy tools:
What are the benefits of a bridge loan in Connecticut?
There are several benefits to using a bridge loan:
- Non-contingent Offers: Secure your new home with a non-contingent offer, making your bid stand out.
- One Move Only: You won’t have to endure the hassle of moving twice. Transition seamlessly.
- Prep Your Old Home: Move out and prepare your old home for sale at your own pace.
- Payment Flexibility: Some lenders offer grace periods without immediate payments.
- Quick Property Acquisition: Move into your dream property, bypassing concerns about your home’s sale status.
What are the drawbacks of a bridge loan?
While bridge loans offer flexibility, they come with a few drawbacks worth considering:
- Extra Costs: Expect additional fees like underwriting and origination charges, adding to your expenses.
- Financial Strain: Balancing two mortgages and a bridge loan can strain your finances, even with interest-only payments.
- Qualification Challenges: Qualifying can be more demanding than traditional mortgages, potentially slowing your process.
- Equity Requirement: Lenders assess your departing home’s equity; if you owe over 80% of its value, you may not qualify.
When is a bridge loan a good solution?
A bridge loan isn’t for everyone, but depending on your circumstances, it could be just what you need to solve your home-buying woes. Here are some common scenarios in which a bridge loan might fit your needs:
- You need your current home’s equity for a new home’s down payment.
- When faced with a competitive market, it allows you to seize your dream home quickly.
- You want to avoid home sale contingency limitations with a bridge loan.
- Preparing or staging your current home is too challenging due to occupancy or renovation needs.
What’s required to get a bridge loan in Connecticut?
To qualify for a bridge loan in Connecticut, you’ll typically need to meet the following criteria:
- Qualifying income: Lenders assess your income to ensure you can handle current and new mortgage payments, plus any interest-only bridge loan payments.
- Sufficient equity: Generally, you should have at least 20% equity in your current home, although some lenders may require up to 50%.
- Good credit history: A favorable credit score, typically above 650, is often required, as it can impact your interest rate and loan-to-value ratio.
- Listing your current home for sale: While not always mandatory, some lenders may require proof that it is on the market to ensure it sells during the bridge loan term.
How much does a bridge loan cost in Connecticut?
Additionally, you’ll need to budget for closing costs, legal fees, and administrative charges. These typically range from 1.5% to 3% of the loan amount and may include:
- Appraisal fee
- Administration fee
- Escrow fee
- Title policy costs
- Notary fee
- Loan origination fee
Below is an example of how much a $250,000 bridge loan might cost, along with possible fees.
You find a home you’d like to purchase, but you’re waiting for your current Connecticut house to sell. The asking price for the new home is $450,000. You can only come up with $200,000, but you have at least another $250,000 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 | $250,000 | $250,000 |
| Interest (varies) | 10% (example for 6 months) | $12,500 |
| Origination fee | 1.5% | $3,750 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $700 | $700 |
| Closing cost* | 2% | $5,000 |
| Total repayable amount | $272,950 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Arizona Home Worth Now?
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Who provides bridge loans in Connecticut?
Finding a bridge loan provider in Connecticut may require exploration, as not all institutions offer these products due to their specific underwriting demands. Here are some common bridge loan providers:
- Your mortgage lender
- Local banks
- Credit unions
- Hard-money lenders
- Non-qualified mortgage (non-QM) lenders
Additionally, there are modern real estate companies that can facilitate the process of securing a bridge loan to bridge the gap between buying and selling your home. We’ll delve into this innovative approach later in the post.
Are there alternatives to bridge loans in Connecticut?
While a bridge loan might not work for every Connecticut 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 kinds of 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 be taking a first and second mortgage out simultaneously 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 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 Connecticut. 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 Connecticut 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 available.
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 Connecticut:
- 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, leading to a higher selling price, according to HomeLight transaction data.
HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution for Connecticut homeowners caught in the buy-sell conundrum. Learn more program details at this link.
HomeLight also offers other services for homebuyers and sellers in Connecticut, 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 Connecticut homeowners
In Connecticut, where the real estate market can be challenging to navigate, homeowners like you are seeking innovative solutions to ease buying and selling homes. Bridge loans offer a lifeline by tapping into your home’s equity, simplifying timing, and reducing the stress associated with these transitions.
However, due to their costs and eligibility requirements, bridge loans may not suit every situation. If you’re looking for a creative financing solution that offers more certainty, consider HomeLight’s Buy Before You Sell program. It provides a streamlined and efficient alternative to bridge loans, offering you peace of mind during your home-buying journey.
HomeLight can connect you with a top-performing Connecticut agent with expertise in bridge loans, ensuring you have the support you need.
Header Image Source: (Balazs Busznyak / Unsplash)
