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

For Arizonans who’ve found their dream home but are short on cash before selling their current place, a bridge loan is a solid option. Once you sell your old home, you can easily pay off the bridge loan with the proceeds.

What are the drawbacks of a bridge loan?

A bridge loan can undoubtedly be a useful tool for homeowners balancing the intricacies of buying and selling. However, it’s essential to be aware of potential pitfalls, as with any financing option.

Furthermore, beyond just examining your monthly income, lenders will scrutinize the equity in your current home. If you owe more than 80% of its value, securing a bridge loan might be off the table.

When is a bridge loan a good solution?

While bridge loans provide unique benefits, they’re not a one-size-fits-all solution for every real estate dilemma. However, for certain homesellers and buyers, they can significantly ease the process of moving from one property to another.

Consider a bridge loan if:

• You need your home equity: If you need to unlock home equity from your current home for the down payment on your next place.
• You want a smooth move: If you’re not into temporary housing or multiple moves, a bridge loan helps you transition directly from your old home to your new one.
• Time is tight: In a hot market, waiting can mean missing out. A bridge loan lets you act quickly and confidently.
• No home sale contingencies: If the seller won’t wait for you to sell your current home, a bridge loan lets you make an offer without that requirement.
• You plan to stage or renovate: If you need to fix up or stage your current home to get top dollar, a bridge loan lets you handle those updates after you’ve moved.

For anyone in these situations, bridge loans can make for a smoother and more seamless property transition.

What’s required to get a bridge loan in Arizona?

To qualify for a bridge loan in Arizona, you typically need the following:

• Qualifying income: Lenders will check your income to make sure you can handle payments on your current and new mortgages, plus possibly an interest-only bridge loan payment.
• Sufficient equity: You typically need at least 20% equity in your current home, though some lenders may want up to 50%.
• Good credit history: Aim for a credit score above 650, which will help with approval, interest rates, and other loan terms. A higher score is better, and if you’ve got a solid track record with your current lender, it’s worth asking them about bridge loan options.
• Current home listed for sale: Some lenders prefer to see that your home is listed to ensure it sells within the bridge loan period, though it’s not always a strict requirement.

How much does a bridge loan cost in Arizona?

Getting a bridge loan in Arizona usually means paying higher interest rates — about 1 to 3 percentage points above the prime rate than a regular mortgage. You’ll also need to budget for extra fees, like:

• Origination Fees: A percentage of the loan amount for processing the loan.
• Appraisal Costs: For evaluating your current home’s value, which can vary based on location and property size.
• Closing Costs: These include title insurance, recording fees, and maybe attorney fees.
• Points: Some lenders charge points (a percentage of the loan) to lower your interest rate or cover extra costs.

The higher costs are due to the extra risk lenders take on. If your current home doesn’t sell on time, you’ll need to handle payments for both your existing mortgage and the bridge loan. The exact rate and fees depend on your credit score, the loan amount, the lender’s terms, and market conditions. Be prepared for potential prepayment penalties or a higher down payment to manage the lender’s risk.

How to reduce bridge loan costs

Opting for the same lender for both your bridge loan and your new mortgage can be cost-effective. This usually means you sidestep additional underwriting fees because both loans undergo the approval process simultaneously.

It’s smart to compare different lenders to get the best deal. Since a bridge loan is just a temporary fix, don’t focus only on costs. Think about convenience and how well each option fits your situation. We’ll cover more options in the next section.

Budget for closing costs

It’s essential to remember that, like other loans, bridge loans also come with closing costs, administrative fees, and legal expenses. Generally, these costs range from 1.5% to 3% of the loan’s total value. Here’s what you might encounter:

• Appraisal fee
• Administration fee
• Escrow fee
• Title policy costs
• Notary fee
• Loan origination fee

Bridge loan cost example

Below is an example of how much a $300,000 bridge loan might cost, along with possible fees.

You find a home you’d like to purchase, but you’re still waiting for your current Arizona house to sell. The new home’s asking price is $500,000. You can only come up with $200,000, but you have at least another $300,000 worth of equity in your current property. You want to access that money to cover the shortfall before your new home is sold to another buyer.

*Closing costs typically range between 1.5% and 3% 

Who provides bridge loans in Arizona?

Who provides bridge loans in Arizona?

In Arizona, not every lender offers bridge loans, as they’re a bit more specialized. If you’re looking for one, here are some options to consider:

• Your current mortgage lender: If you’ve got a solid history with your current lender, they might offer bridge loan options.
• Local banks: Some local or regional banks have specialized loan products, including bridge loans, to serve their community.
• Credit unions: These member-focused institutions often offer a range of loan products, including bridge loans, tailored to their members.
• Hard-money lenders: These lenders are usually more flexible with risk and might offer bridge loans, especially for real estate investments or tricky situations.
• Non-qualified mortgage (non-QM) lenders: These lenders provide more flexible options for borrowers who don’t fit traditional mortgage criteria, including bridge loans.

Also, some modern real estate companies in Arizona have streamlined processes to help you get a bridge loan, making it easier to buy a new home while waiting to sell your old one. We’ll dive into how this works later in this post.

Are there alternatives to bridge loans in Arizona?

While a bridge loan might not work for every Arizona homeowner’s unique situation, there are alternatives to consider:

• Home equity loan: This kind of loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral. Interest rates for a home equity loan can be more expensive than your current rate on your first mortgage, but instead of completing a cash-out refinance (paying off the first mortgage and borrowing cash), you can just borrow the money you need at the higher interest rate and leave your first mortgage of at its lower rate.
• Home equity line of credit (HELOC): Another option to use your existing equity is a HELOC. This allows you to pull money out of your property for a relatively low interest rate. Instead of receiving the money all at once, your lender will extend a line of credit for you to borrow against. You might, however, have to pay an early closure fee if you open this line of credit and close it very soon after. Unlike a home equity loan, HELOCs typically have adjustable interest rates.
• Cash-out refinance: This type of loan lets you pull cash out of your home while refinancing your previous mortgage at the same time. Interest rates typically are higher for these kinds of loans compared to regular refinances, but are lower than those for bridge loans. This is not a solution for everyone, though. For example, you can’t get two owner-occupied loans within a year of each other. This would mean that you might have to wait longer to finance your new purchase with an owner-occupied mortgage using the cash from your cash-out refinance.
• 80-10-10 (piggyback) loan: This option is called a piggyback loan because you would be taking a first mortgage and second mortgage out at the same time to fund your new purchase — this means that you would only need 10% down. For buyers who can’t make as large of a down payment before selling their previous home, this could be a solution that helps them avoid the cost of mortgage insurance. You would, however, still be carrying the cost of three mortgage payments until you sell your current home and can pay off the second mortgage.
• A 401k loan: Borrowing against your retirement account comes with some benefits and drawbacks — your repayment period will be relatively short (up to 5 years), and your monthly payment will likely be high. This could affect your ability to qualify for your new mortgage, as your lender will need to include this monthly payment when calculating your DTI ratio. If your 401k plan allows, you might be able to borrow up to $50,000 to put toward your new purchase.

Are there modern ways to buy a house before I sell?

Thanks to today’s tech, companies like HomeLight offer real estate solutions that make buying and selling a house at the same time easier in Arizona. Their “Buy Before You Sell” programs provide a more complete “bridge,” helping you move smoothly into a new home with less stress and hassle.

Teaming up with your Arizona agent, HomeLight can help you quickly and confidently move into your new home while getting the best deal for your old place. Just check with your agent to see if HomeLight’s Buy Before You Sell program is available in your area.

Examples of other Buy Before You Sell or home trade-in service companies include Knock, Orchard, Flyhomes, and Homeward.

How does HomeLight Buy Before You Sell work?

Here is how HomeLight’s Buy Before You Sell program works for homesellers in Arizona:

1. Apply in minutes with no commitment: Find out if your property is a good fit for the program and get your home equity unlock amount approved in 24 hours or less. No cost or commitment is required.
2. Buy your dream home with confidence: Once you’re approved, you’ll have access to a portion of the equity in your current home. You’ll be able to submit a competitive offer with no home-sale contingency at any time — regardless of how long it takes to find your dream home. Our near-instant equity unlock calculator lets you estimate how much equity we can unlock from your current home.
3. Sell your current home with peace of mind: After you move into your new home, we will list your unoccupied home on the market to attract the strongest offer possible. You’ll receive the remainder of your equity after the home sells.

For Arizona homeowners stuck in the buy-sell dilemma, HomeLight’s Buy Before You Sell program provides a convenient and stress-free solution. Check out the details of the program here.

HomeLight has more to offer homebuyers and sellers in Arizona, like matching you with top real estate agents in your area through their agent match service. And Simple Sale, which gives you a no-obligation, all-cash offer for your home in as few as 24 hours, and closing in as few as 10 days. Plus, you can use HomeLight’s net proceeds calculator to help plan your home sale.

A creative financing solution for Arizona homeowners

As Arizona homeowners navigate a tough real estate market with high property values, many are turning to bridge loans to make their move from one home to another smoother.

Bridge loans allow you to unlock home equity to fund your next purchase, giving you more time to sell your old place without the stress of timing both transactions perfectly.

While this can make the transition easier, it does come with costs and might not be right for everyone. For a more predictable way to handle buying and selling, check out HomeLight’s Buy Before You Sell program. It’s designed to bring a new level of confidence and ease to the homebuying and selling process.