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

Navigating the world of home-buying in Arizona can feel like piecing together a complex jigsaw puzzle, especially with tight inventory and soaring property values. If you are relying on the equity in your current home to make a down payment on the new one, it may seem the only way the puzzle fits together is to sell, move out, and find a third location to live while you shop for the new house.

Enter the bridge loan: A timely financial lifeline that lets you buy your new home before selling your old one.

If you’re trying to bridge the gap between buying and selling in Arizona, this guide is for you. We’ll delve into the mechanics, pros, cons, and alternatives to bridge loans, ensuring you have all the tools you need to make the best decision for your unique situation.

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.

What is a bridge loan, in simple words?

At its core, a bridge loan is a short-term financial solution designed to help you buy your next Arizona home before you’ve sold your current one. Think of it as a temporary bridge that supports you during the gap between selling and buying properties.

Often referred to as a “swing loan” or “interim loan,” a bridge loan typically is pricier than your regular mortgage. The reason? Lenders take on a higher risk by banking on your ability to sell your old home in a timely manner. Essentially, a bridge loan leverages the equity you’ve built in your current home, enabling you to secure your new property without the wait.

How does a bridge loan work in Arizona?

A common Arizona real estate scenario: You find your dream home before selling your current home. To make it work, you can use a bridge loan, tapping into your existing home’s equity to cover the down payment and closing costs for the new place.

Usually, the lender handling your new mortgage in Arizona will also offer the bridge loan. They’ll want your current home to be actively listed for sale, and the bridge loan typically lasts between six months and a year.

Your lender likely will calculate your debt-to-income (DTI) ratio as part of their evaluation. This calculation includes your current mortgage payment, the payment for the new home, and, if applicable, the interest-only payment on the bridge loan.

Here’s the good news: If your current home is under contract with a buyer who has final loan approval, some Arizona lenders might only factor in your new mortgage payment. This approach helps ensure you can handle payments for both properties, just in case your old home takes a bit longer to sell.

What are the benefits of a bridge loan in Arizona?

Bridge loans come with a set of advantages that can give homebuyers in Arizona an edge in today’s competitive real estate market.