Unlock Your Home’s Equity in Pennsylvania: Bridge Loans Explained

The challenge of selling your home in Pennsylvania while buying a new one can be overwhelming. Ideally, you want timelines to be synced: sell at the right time, not too quickly that you don’t end up homeless and not too late that you miss out on your dream home because you didn’t have enough funds for the purchase. Fortunately, with innovative solutions, you can turn what seems like chaos into a seamless transition. Enter the bridge loan, a potential lifeline in this complex process.

This financial tool could be the missing piece that helps make your home-buying journey seamless and less burdensome. In this post, we’ll provide tips and insights about bridge loans in Pennsylvania, and how to Buy Before You Sell.

DISCLAIMER: This post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Pennsylvania, HomeLight encourages you to reach out to your own advisor.

What is a residential bridge loan?

A bridge loan is essentially a financial tool designed to help you, the homeowner, when you’re caught in the common dilemma of needing to buy a new home before selling your existing one. Imagine it as a short-term lending solution that taps into the equity of your current home. This provides you with the necessary funds to make a down payment and handle closing costs on your next home purchase in Pennsylvania.

Think of a bridge loan as a temporary financial pathway. It effectively “bridges” the gap between the time you buy your new home and the time you sell your old one.

Due to their temporary nature and the inherent risks involved, bridge loans usually come with slightly higher interest rates compared to conventional mortgages.

How does a bridge loan work in Pennsylvania?

In Pennsylvania, a typical scenario where you might consider a bridge loan is when you find your dream home but haven’t yet sold your current property. In this situation, the equity from your existing home is leveraged to cover the down payment and closing costs for your new home.

Often, the lender who is financing your new home will also provide the bridge loan, requiring that your current home is actively listed for sale. These bridge loans are generally available for a period ranging from six months to a year, giving you some breathing room.

Your lender will likely assess your debt-to-income ratio (DTI) to determine your eligibility for a bridge loan. This calculation will include your existing mortgage payments, the expected payments for your new home, and any interest-only payments on the bridge loan. This comprehensive evaluation ensures that you can manage the financial obligations of both properties concurrently.

However, there’s a possible silver lining if your current home is close to being sold. If it’s under contract and the buyer has secured their financing, your lender might consider only the mortgage payment of your new home when calculating your DTI.

What are the benefits of a bridge loan in Pennsylvania?

Bridge loans in Pennsylvania offer several advantages that can make your homebuying experience more flexible and less stressful. Here are some key benefits:

Make a non-contingent offer: Position yourself as a competitive buyer by making offers not contingent on selling your existing home.
Single move convenience: Avoid the hassle and cost of multiple moves. Transition directly from your old home to your new one.
Prepare your old home for sale later: You have the opportunity to make your old home market-ready, potentially increasing its sale value.
Maximize possible delayed payments: Some lenders offer a grace period with no payments, easing your financial burden.
Quick action on ideal properties: Grab the opportunity to buy your dream home without waiting for your current home to sell.

These benefits make bridge loans an appealing option for Pennsylvania buyers who need financial flexibility before they can sell their existing home, ultimately allowing them to settle the bridge loan using the sale proceeds.

What are the drawbacks of a bridge loan?

Bridge loans can be a helpful financial tool, but they also come with certain drawbacks that are important to consider:

Incur additional loan costs: Expect fees like underwriting and origination, which add to the overall cost of the loan.
Face increased financial stress: Juggling payments for two mortgages plus a bridge loan (even if interest-only) can be financially challenging.
Prepare for more challenging qualification criteria: Securing a bridge loan can be more difficult than obtaining a traditional mortgage due to stricter requirements.
Deal with a slower underwriting process: The approval process for a bridge loan may take longer than expected, potentially delaying your plans.
Comply with equity requirements: Lenders evaluate the equity in your current home. Owing more than 80% of its value may disqualify you.

These considerations are crucial in assessing whether a bridge loan is the right choice for your financial situation and real estate goals.

When is a bridge loan a good solution?

A bridge loan isn’t always the right choice for every real estate situation, but it can be an effective solution in certain scenarios:

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. This is particularly relevant if you’re unable to prepare or stage your current home for sale while still living in it. A bridge loan allows you to move out, thereby making it easier to set up your home in a way that enhances its market appeal and potential sale price.