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

If you’re in the midst of selling your Massachusetts home and on the hunt for your next dream property, you know that synchronizing both deals can be a nerve-wracking puzzle. Especially in a market where inventory is scarce and home prices are high, the balancing act can seem daunting.

Are you feeling cornered into selling first, moving out, and then scrambling to find a temporary rental while you search for your next home? A bridge loan might be the lifeline you need, offering a short-term financing solution that lets you purchase your new home even before you’ve handed over the keys to your old one.

DISCLAIMER: This post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Massachusetts, HomeLight encourages you to reach out to your own advisor.

What is a bridge loan, in simple words?

A bridge loan, in the realm of residential real estate, is your ticket to buying your next home without the agonizing wait for your current one to sell. Imagine it as a temporary financial bridge carrying you from one property to the next. Often referred to as a swing or bridging loan, it eases the transition for homeowners between homes.

However, it’s essential to note that a bridge loan can be pricier than your typical mortgage. Why? The lender is taking on a heftier risk. They’re essentially advancing the equity you’ve accrued in your present home, enabling you to seal the deal on your new residence.

How does a bridge loan work in Massachusetts?

Navigating the Massachusetts real estate market often means acting quickly, and a bridge loan could be crucial if you find your dream home before your current one sells. Essentially, the bridge loan uses the equity from your existing home to finance the down payment and closing costs of your new property.

In many cases, the lender handling your new mortgage will also provide your bridge loan. But most lenders will expect your current house to be actively listed for sale, and they typically extend the bridge loan for a period ranging from six months to a year.

Your financial picture during this time, especially your debt-to-income ratio (DTI), becomes important. Your DTI will factor in your current mortgage, the new one, and any interest-only payments on the bridge loan. But if your old home is already under a solid sales contract, your lender might only consider the mortgage payment on your new Massachusetts home when assessing your loan application.

This financial assessment helps to ensure you’re not overstretched if your previous home takes a little longer to sell than expected.

What are the benefits of a bridge loan in Massachusetts?

In Massachusetts, a bridge loan can give you a competitive edge and flexibility as a buyer in a tight market. Here are some of the key advantages:

Non-contingent offers: You can make offers on new homes without the sale contingency of your current property, making your bid more attractive to sellers.
Single move: You avoid the hassle and cost of multiple moves by staying in your current home until you close on your new one.
Easier home staging: After moving to your new home, you can stage and potentially increase the sale value of your old one without juggling living in it.
Deferred payments: Some lenders may offer the option to defer loan payments, giving you financial breathing room during the transition.
Swift action on new listings: You can quickly move on a property you love, regardless of whether your current home has sold, ensuring you don’t miss out in a fast-moving market.

These benefits are particularly valuable for Massachusetts buyers who may be short on liquid funds before their home sells, allowing the bridge loan to be settled with the proceeds from their sale.

What are the drawbacks of a bridge loan?

While a bridge loan might seem like a perfect solution to your real estate timing issues, it’s important to weigh the potential downsides before proceeding:

Additional costs: Expect to encounter extra expenses, such as underwriting fees and origination fees, that come with taking out a bridge loan.
Financial burden: You may find yourself juggling payments for two mortgages plus the bridge loan, which can be a significant financial strain.
Tougher qualification criteria: Getting approved for a bridge loan can be more challenging than for a standard mortgage, as lenders look at a wider range of factors.
Slower underwriting process: The underwriting process for a bridge loan may take longer than anticipated, which can be stressful if you’re on a tight timeline.
Equity requirements: Lenders will assess the equity in your current home. If you owe more than 80% of its value, you might not qualify.

Considering these drawbacks is crucial to ensure a bridge loan aligns with your financial situation and real estate goals.

When is a bridge loan a good solution?

A bridge loan can be the key to unlocking your next home purchase under the right circumstances. Here are situations where a bridge loan stands out as a practical solution:

If the equity in your existing home is essential for the down payment on your new property.
To avoid the hassle and expense of temporary housing, a bridge loan can enable a single move.
In a competitive Massachusetts market where homes go quickly, a bridge loan gives you the agility to make an offer without delay.
If your seller is not open to a home sale contingency, a bridge loan allows you to proceed with the purchase.
When your current home requires staging or renovations to fetch the best price, a bridge loan can help you move out and start working on those improvements without the pressure of living on-site.