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

With low inventory and notoriously high home prices, California homeowners are looking for creative financing solutions to fund their dream home purchases. One of these solutions comes in the form of a bridge loan — this kind of loan allows homeowners to purchase their next home before needing to sell their old one.

If you need more time to prepare your old home to sell, or you’ve fallen in love with your dream home and need to act quickly, a bridge loan might be your solution to navigating the process of buying and selling.

In this post, we’ll share expert insights on this unique financing solution and how you can put it to work for you. Let’s dive in.

DISCLAIMER: This post is for educational purposes only and does not constitute legal or financial advice. If you need assistance navigating the use of a bridge loan in California, HomeLight always encourages you to reach out to your own advisor.

What is a bridge loan, in simple words?

In real estate, a bridge loan is intended to be a convenient and fast way to buy your new home without waiting for your old home to sell. This short-term loan (also called a swing or bridging loan) helps homeowners during the transition between properties.

A bridge loan is typically more expensive than a traditional mortgage. The bridge lender will lend the buyer the equity they have built in their existing house so they can move forward with the purchase of a new home.

How does a bridge loan work in California?

The most common scenario in real estate where a California buyer will need to apply for a bridge loan occurs when they need to purchase their new property before their old home has sold. In this case, they will use the equity from their previous home to cover the down payment and closing costs for their new purchase.

Homeowners in California have seen record spikes in home equity, though it dipped a bit in Q1 2024, according to ATTOM. California, with 58.6%, is one of the states with the highest levels of equity-rich mortgaged properties in the U.S. during Q1 of 2024. According to Robert Lopez, a top real estate agent on Team Z Realty, whose team sells homes 51% faster than average agents in San Diego, this growth in value greatly improves a homeowner’s chance of qualifying for a bridge loan and using the equity that they have built on their previous homes.

“Here in San Diego, our prices have increased over the past few years at a rate we’ve never seen before. So in the past few years, I think it’s pretty easy [for borrowers to qualify] because of the equity spike,” Lopez explains.

In many cases, the lender providing your new mortgage will also handle your bridge loan. They typically require that your existing home be listed on the market, and will offer this bridge loan for a maximum of six months to one full year.

Depending on your unique situation, the lender on the new home might need to calculate your debt-to-income (DTI) ratio. The DTI equation would include the payments from your current mortgage on your old house, your new payment on the home you are purchasing, and the interest-only payment on the bridge loan (if applicable). 

However, your lender may be able to consider only your new mortgage payment if your previous home is under contract and the new buyer has received final loan approval for their purchase.

Lenders do this to ensure that you will be able to make the payments on both properties in the event that your home does not sell immediately.

What are the benefits of a bridge loan in California?

For the savvy homeowner, bridge loans can be a great tool for closing the gap between buying a new home and selling your old one. Here are some of the benefits of this kind of financing:

You can make a non-contingent offer on your new home

To compete in California’s tough housing market, coming in with a strong offer is as important as ever.

“When you are making an offer that is contingent on the sale of your previous residence, which is the alternative to getting a bridge loan, you don’t have a lot of purchase price negotiation ability because you are asking the seller to wait until you sell your home,” explains Heidi Daunt, branch manager and owner of Treehouse Mortgage Group in Monterey, California, who has more than 35 years of lending experience. “If you have an approved bridge loan, you can write a non-contingent offer, so it gives you better negotiating power on your new purchase.”

You only have to move once

One of the biggest stressors for homeowners who want to buy and sell at the same time is the timing. If you sell your home first, and can’t close on your new home in time, you risk having to find a temporary place to live.

While this is not only inconvenient, it can be expensive. The cost to hire local movers in California can range anywhere between $400 on the lower end and $4,000 or more depending on the size of the home and the distance of the move. Paying movers to move all of your belongings from your old home to your temporary one, then finally to your new purchase, could double that expense.

The cost of renting your temporary home is also significant — in fact, California has the second-highest average monthly rent in the United States. A bridge loan could be your solution to this problem.

You can prepare your old home for sale after moving out

Getting a home listing ready can be a stressful and difficult process for homesellers, especially if they are still living in the house while trying to renovate or declutter for showings.

Lopez recalls an experience when a bridge loan gave his clients more time to prepare their previous residence after they had moved out. Being in their new home sooner made it much easier to work with contractors to make renovations.

“Being able to use those resources for a couple of weeks in order to best represent the property and stage it once they were out of there really increased our showing capacity,” he says.

Some lenders don’t require payments during the loan period

Repayment options will vary depending on the lender, but many lenders will not require you to make a monthly payment on your bridge loan during the loan period. Some might require an interest-only monthly payment or a lump sum interest payment at the end of the term along with the loan balance.

This can make a bridge loan a convenient option for buyers who are tight on cash before selling their previous home, allowing them to pay off their bridge loan using the proceeds from their sale.