Bridge Loans in Miami: How to Unlock Home Equity to Buy Before You Sell

Purchasing a new home in Miami, especially when trying to sell your old home, can be difficult. Balancing limited time and finances may feel impossible in a market where inventory is tight and prices continue to rise. You might think your only option is to sell your current home, temporarily relocate, and then begin the hunt for your dream house. But there’s another option that you probably haven’t considered: a bridge loan.

A bridge loan is a short-term loan that “bridges the income gap” between selling your existing property and purchasing your next home. This guide will explore how bridge loans in Miami work, along with their benefits and potential drawbacks, and help you determine if a bridge loan is the right move for you.

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.

Buy Before You Sell

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 Miami, HomeLight encourages you to reach out to your own advisor.

What is a bridge loan, in simple words?

In real estate, a bridge loan, also known as a swing loan, bridging loan, or gap financing, lets you utilize the equity in your existing home to give you the money required to make a down payment and cover the closing costs for your new property.

Although they’re typically pricier than traditional mortgages, bridge loans shine in their ability to provide a seamless home-buying experience. You won’t have to wait for your old home to sell before securing your new dream home.

How does a bridge loan work in Miami?

Imagine you’ve found your Miami dream home but are still waiting for your current house to sell. This is a typical scenario where a bridge loan is helpful. It allows you to tap into your existing home’s equity, providing funds for the down payment and closing costs on your new Miami residence.

Typically, the lender working on your new mortgage will also handle your bridge loan. They’ll need your existing home to be listed for sale and usually offer the bridge loan for six months to a year.

A critical part of this arrangement involves assessing your debt-to-income ratio (DTI). This includes the payments on your current mortgage, the new mortgage for your upcoming home, and any interest-only payments on the bridge loan. However, if your old home is under contract with a buyer who has secured their loan, the lender might only consider the payment on your new mortgage.

This is important for lenders to ensure that you can comfortably handle payments on both properties, especially if your current home doesn’t sell right away.

What are the benefits of a bridge loan in Miami?

Bridge loans in Miami have several advantages:

• Make a non-contingent offer on your new home, increasing its appeal to sellers.
• Only one move is required to avoid the hassle and cost of temporary housing.
• After moving, easily prepare your old home for sale, possibly including staging.
• Some lenders may offer a period with no payments due on the bridge loan.
• Don’t miss out on desired properties while waiting for your current home to sell.

What are the drawbacks of a bridge loan?

While a bridge loan offers several advantages, knowing its potential drawbacks is important:

• Involves additional loan costs like underwriting and origination fees.
• Increased financial pressure from managing up to two mortgages and a bridge loan simultaneously.
• Often harder to qualify for compared to traditional mortgage loans.
• The underwriting process can be slower than expected.

Moreover, lenders will assess the equity in your current home when determining your borrowing capacity. Qualifying for a bridge loan might be challenging if you owe more than 80% of your home’s value.

When is a bridge loan a good solution?

A bridge loan isn’t the right move for everyone, but in certain situations, it can greatly ease the transition from an old to a new home. Here are some examples of where a bridge loan might be just what you need:

• When the equity in your current home is needed for the down payment on a new property.
• If avoiding the cost and hassle of a double move and temporary housing is crucial for your situation.
• When your ideal home comes on the market, and you want to act fast without competitive delays.
• If your offer’s home sale contingency has been a stumbling block in purchasing a new home.
• When you wish to sell an empty or staged home, which is often more appealing and profitable. This is particularly relevant if you cannot prepare or stage your current home for sale while still living in it, as an unoccupied, well-staged house can significantly enhance its marketability and potentially increase its sale price.