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

If you are selling your home in Colorado but also looking to purchase a new one, the timing of both transactions can feel impossible to plan perfectly. If you rely on the equity in your current home to make a down payment on the new one, it may seem your only option is to sell, move out, and find a third location to live while you shop for the new house. But before you resign yourself to months of mayhem, you may consider a bridge loan to streamline the process and reduce stress.

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 Colorado, HomeLight 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 house to sell. This short-term financing (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 because there is more risk involved for the lender. The bridge lender will loan 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 Colorado?

A common real estate scenario where a Colorado buyer needs to apply for a bridge loan is 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.

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 ratio (DTI). 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 might only be able to include your new mortgage payment if your previous home is under contract and the new buyer has final loan approval for their purchase. Lenders do this to ensure 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 Colorado?

There are benefits to borrowing a bridge loan that can position you as a more flexible homebuyer.