Bridge Loans in Washington, D.C.: How to Unlock Home Equity to Buy Before You Sell
Explore bridge loans in Washington, D.C. with this simple guide covering its benefits, costs, providers, and alternatives to ease your homebuying process.
When you’re selling a home in Washington, D.C., and trying to buy a new one, things can get complicated quickly. Ideally, the sale of your current home and the purchase of your new one would align, and you’d have the funds for both transactions. But for most homeowners, that’s rarely the case.
A delay in either deal can throw everything off course. Suddenly, you’re faced with logistical challenges: finding temporary housing, making a double move, or even walking away from your dream home and restarting the home search process all over again.
But what if there was a way to make this process easier? Enter bridge loan, a short-term financing option that allows you to purchase a new home before selling your current residence, alleviating pressure and uncertainty.
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.
DISCLAIMER: This post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Washington, D.C., HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is a short-term loan that allows homeowners to manage the financial gap between selling their current home and purchasing a new one. It leverages the equity in your existing home, providing the money required for the down payment and closing costs for your dream home.
Bridge loans are great because they provide speed and convenience over traditional mortgages. They are also known by several other names, including bridge financing, bridging loans, interim financing, gap financing, and swing loans.
How does a bridge loan work in Washington, D.C.?
Imagine you’re a homeowner in Washington, D.C., and you’ve just found your dream home. The catch? You need to buy this new property before selling your current one. This is where a bridge loan comes into play, acting as a financial bridge between selling your old home and purchasing your new one.
You’ll use the equity from your previous home to cover the down payment and closing costs for your new home. Typically, the lender handling your new mortgage will also manage your bridge loan. The lender will typically require that your existing home is listed for sale first, and the bridge loan will be offered for a period between six months to a year.
Lenders will first consider your debt-to-income ratio (DTI). They consider the payments on your current mortgage, the payments for the new home you’re buying, and any interest-only payments on the bridge loan. However, if your old home is already under contract, and the buyer has secured loan approval, your lender might consider only the new mortgage payment in the DTI calculation.
The lender’s primary concern will be whether you can comfortably handle payments for both properties, in case your old home doesn’t sell immediately.
What are the benefits of a bridge loan in Washington, D.C.?
Bridge loans in Washington, D.C. offer several advantages:
- Non-contingent offer on the new home: With a bridge loan, you can make a non-contingent offer on your new home, which is often more attractive to sellers.
- Hassle-free move: You can move directly from your old home to the new one, avoiding temporary housing.
- Better home sale preparation: After moving out, you can prepare your old home and even consider staging to enhance its market appeal.
- Deferred payments: Some lenders may not require payments on the bridge loan for a certain period.
- Quick action on ideal properties: A bridge loan allows you to quickly pursue a property without the sale status of your current home delaying the process.
What are the drawbacks of a bridge loan?
While bridge loans can be a good option for handling the transition between homes, they come with drawbacks that you should keep in mind:
- Additional loan costs: Expect fees like underwriting and origination fees, adding to the total cost of the loan.
- Increased financial burden: Covering the payments for two mortgages and a bridge loan simultaneously can be financially challenging.
- Stricter qualification criteria: Qualifying for a bridge loan might be more demanding than a traditional mortgage.
- Potential for slower underwriting: The underwriting process for a bridge loan can take longer than anticipated.
- Steep equity requirements: Lenders will also assess the equity in your current home when determining your borrowing capacity. Securing a bridge loan might be difficult if your mortgage debt exceeds 80% of your home’s value.
When is a bridge loan a good solution?
Depending on your circumstances, a bridge loan could be exactly what you need:
- You need the equity from your current home for a down payment for a new home.
- You can’t afford a double move and interim housing or need to bridge the sale and purchase timelines.
- Your dream home just hit the market, and you want to act fast to avoid competitive delays.
- You need immediate purchasing power to appeal to sellers since your home sale contingencies have hindered past offers.
- You want to vacate your current home so you can stage it more effectively for sale. A well-dressed space is more appealing to buyers and potentially more profitable. With a bridge loan, you can move to your new home quickly and prepare the old one to sell for top dollar.
