Maximize Equity in Illinois: Bridge Loans Help You Buy Before You Sell

Many Illinois homeowners find themselves in a tricky situation when selling their home while buying another one. You want to get the best price for your current place, but you also don’t want to miss out on that perfect new home. The pressure mounts as you navigate the delicate balance of selling fast enough to finance your next move because otherwise, you end up with multiple loan payments, a temporary rental, and several moves creating unnecessary financial stress. In such a scenario, a modern solution can be helpful: bridge loans.

As a short-term financing option, bridge loans in Illinois offer a unique opportunity. They enable you to purchase your new home before you sell your current one, smoothing out the transition and alleviating the stress of timing in the real estate market.

In this post, we’ll provide insights and helpful tips about bridge loans in Illinois.

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

What is a residential bridge loan?

A bridge loan is a financial tool designed to help you buy a new home while still owning your current one. This type of loan leverages the equity in your current home to provide the cash you need for a down payment and other expenses related to your new purchase.

Think of a residential bridge loan as a temporary financial lifeline. It acts as a bridge, filling the gap between the sale of your old home and the purchase of your new one. This can be particularly useful in a competitive market like Illinois, where timing is crucial.

Typically, bridge loan terms last anywhere from six months to a year. It’s important to note that bridge loans usually have higher interest rates compared to traditional mortgages. This is due to their temporary nature and the higher risks involved for lenders. Despite this, for many Illinois homeowners, the benefits and convenience of a bridge loan can make it a valuable option during the homebuying process.

How does a bridge loan work in Illinois?

In many cases, the same lender handling your new mortgage in Illinois will also offer the bridge loan. They generally require that your current home be on the market, and these loans are usually available for six months to a year. This setup provides a cushion, allowing you not to miss out on your new home while waiting for your old one to sell.

A key aspect of this process is your debt-to-income ratio (DTI). Illinois lenders will look at the payments on both your current and new mortgages, plus any interest-only payments on the bridge loan. This calculation helps them assess your ability to handle payments on both properties simultaneously.

However, if your existing home is already under contract and the buyer’s loan is approved, some lenders may consider only your new mortgage payment in the DTI calculation.

What are the benefits of a bridge loan in Illinois?

Bridge loans in Illinois offer several advantages, making them an appealing option for homebuyers balancing the timing and financial challenges of buying a new home while selling their old one. Here are some key benefits:

Make a non-contingent offer: An offer not dependent on the sale of your home increases your competitiveness as a buyer in Illinois’ competitive real estate market.
Move only once: Avoid the hassle and expense of moving twice or finding temporary housing.
Prepare your old home for sale later: After moving out, you have the time to make your current home market-ready.
Maximize loan payment flexibility: Some Illinois lenders offer a period without required payments, easing your financial burden.
Act quickly on ideal properties: Secure your new home in Illinois without waiting for your old one to sell.

These benefits make a bridge loan a strategic choice for Illinois homeowners who need financial flexibility before they can access the equity from their home sale. With a bridge loan, you can more confidently move forward in the housing market.

What are the drawbacks of a bridge loan?

While a bridge loan can be a helpful tool for transitioning between homes, it’s important to be aware of its potential drawbacks. Here are some key considerations:

Incur additional loan costs: Expect fees like underwriting and origination, adding to the overall expense.
Face increased financial stress: Juggling payments for two mortgages plus a bridge loan can strain your finances.
Navigate tougher qualification criteria: Qualifying for a bridge loan can be more challenging than for a traditional mortgage.
Deal with a slower underwriting process: The approval timeline might be longer than anticipated, impacting your plans.
Satisfy equity requirements: Your eligibility depends on the equity in your current home. Owing more than 80% can be a disqualifier.

Understanding these drawbacks is crucial in making an informed decision about whether a bridge loan is the right choice for your situation.

When is a bridge loan a good solution?

A bridge loan isn’t always the go-to option for every home sale or purchase, but in certain scenarios, it can significantly ease the transition from your old home to your new one. Here are some instances where a bridge loan might be a particularly good fit:

You need equity from your current home to fund the down payment for a new property.
Affording a double move and temporary housing isn’t feasible, making timing alignment crucial.
Your ideal home comes on the market, and immediate action is necessary to avoid competitive delays.
Previous offers have fallen through due to home sale contingencies, and you need more purchasing power.
You prefer to sell your home empty or staged, which could result in a faster sale and potentially higher offers. This is especially relevant if you find it challenging to prepare or stage your current home for sale while still living in it. With a market-ready home, you can sell it at a possibly better price.