Bridge Loans in San Diego: How to Unlock Home Equity to Buy Before You Sell
Discover San Diego bridge loans: A guide to costs, benefits, qualifying, and creative solutions like HomeLight's Buy Before You Sell program.
Selling your existing San Diego home while trying to purchase a new one can feel insurmountable. This can be especially tough in a market with low inventory and high prices. You might think your only choice is to sell your current home, find a temporary place to live, and search for your new house. But there’s an alternative you probably haven’t considered — a bridge loan.
A bridge loan is a short-term financial tool that “bridges the income gap,” enabling you to purchase your new home before you’ve sold your old one. This allows you to utilize the equity from your existing property and streamline the transition into your new home without needing temporary housing.
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 San Diego, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan steps in as a short-term loan that uses the equity you’ve built up in your existing home, providing the funds needed for the down payment and closing costs on your new property.
While these loans are typically more expensive than traditional mortgages, in exchange, they offer convenience and expediency when time is of the essence, letting you move forward with your new home purchase in San Diego without the delay of waiting for your old home to sell.
How does a bridge loan work in San Diego?
A typical situation in which a San Diego home buyer might need a bridge loan is when you’re eager to secure your new home, but your current one hasn’t sold yet. To bridge this income gap, you can leverage the equity from your existing home for the down payment and closing costs on your new property.
Typically, the same lender handling your new mortgage will also manage your bridge loan. They usually require that your old home is listed for sale and offer the bridge loan for a period ranging from six months to a year.
One important thing to consider is your debt-to-income ratio (DTI). Your lender will factor in your current mortgage payments, the mortgage on your new home, and any interest-only payments on the bridge loan. Lenders consider your DTI so that they can be confident you can manage payments on both properties if your old home doesn’t sell as quickly as anticipated.
However, if your old home is already under contract with a buyer who has secured their loan, the lender might consider only your new mortgage payment in the DTI calculation.
What are the benefits of a bridge loan in San Diego?
Bridge loans have several benefits, making them an attractive option for homebuyers dealing with the dual challenge of buying and selling homes.
- Make a non-contingent offer on your new home
- Only move once, avoiding temporary housing
- Prepare your old home for sale more effectively after moving out
- Some lenders offer payment-free periods during the loan term
- Act swiftly on desirable properties without your current home’s sale status affecting you
However, there are several downsides to consider.
What are the drawbacks of a bridge loan?
While bridge loans offer several advantages in managing real estate transitions, they also have drawbacks.
- Additional costs, such as underwriting and origination fees
- The financial burden of managing up to two mortgages plus a bridge loan simultaneously
- Tougher qualification criteria compared to traditional mortgage loans
- Potential for slower underwriting processes than expected
Lenders also consider the equity in your current home when determining your borrowing capacity. Qualifying for a bridge loan may be challenging if you owe more than 80% of your home’s value.
When is a bridge loan a good solution?
A bridge loan is not a one-size-fits-all solution in real estate, but it can significantly ease the transition between selling your current home and purchasing a new one for some homeowners.
Scenarios where a bridge loan might be ideal include:
- When you need equity from your current home for a new home’s down payment.
- Avoiding the costs and hassle of a double move and temporary housing.
- Acting quickly when your dream home becomes available, avoiding competitive delays.
- Overcoming the challenge of a home sale contingency in your offer.
- Desiring to sell a staged home, which is often more profitable and easier to sell.
Especially if you cannot prepare or stage your current home for sale while still living in it, a bridge loan can provide the necessary flexibility and financial leverage. It enables you to vacate and stage your home, often leading to a quicker sale at a higher price.
