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

These benefits make a bridge loan a practical solution for Indiana buyers who need financial flexibility before selling their existing home, allowing them to use the sale proceeds to settle the bridge loan.

What are the drawbacks of a bridge loan?

While a bridge loan can be a strategic tool for managing the transition between homes, it’s essential to be aware of its potential drawbacks:

When is a bridge loan a good solution?

A bridge loan isn’t always the right choice for every real estate situation, but in some 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 an ideal solution:

• You need the equity from your current home to make a down payment on a new one.
• Affording a double move and interim housing is challenging, and aligning the sale and purchase timelines is crucial.
• Your ideal home is on the market, and you must act fast to avoid competitive delays.
• Your offers with home sale contingencies are consistently rejected, and you need more immediate purchasing power.
• You aim to sell an empty or staged home, which can often appeal to buyers and potentially be more profitable.

In cases like these, a bridge loan can provide the necessary financial flexibility, allowing you to move forward with your new home purchase while your current home is still on the market. This can be particularly good if you cannot prepare or stage your current home for sale while still residing there, as presenting a clean, unoccupied property can sometimes accelerate the sale and potentially increase the selling price.

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

To qualify for a bridge loan in Indiana, you typically need to meet the following criteria:

• Qualifying income: Lenders will assess your income to ensure you can handle payments on your current mortgage, new mortgage, and the bridge loan.
• Sufficient equity: You need at least 20% equity in your current home, though some lenders may require as much as 50%.
• Good credit history: A credit score above 650 is usually necessary, influencing your interest rate and other loan terms. A higher score is always advantageous.

Your current home listed for sale: Many lenders require that it is on the market, ensuring it’s likely to sell within the bridge loan term.

How much does a bridge loan cost in Indiana?

In Indiana, the cost of a bridge loan generally exceeds that of a standard mortgage. Interest rates on bridge loans are typically 1-3 percentage points higher than those for traditional mortgage loans. Additionally, bridge loans often incur extra transaction fees.

This higher cost is attributed to the increased risk lenders take on with bridge loans. Borrowers need to consider the possibility of their current home not selling within the expected timeframe. If this happens, you should be financially prepared to manage your mortgage and bridge loan payments simultaneously.

The specific rate you’ll receive largely depends on your creditworthiness and the lender you choose.

How to reduce bridge loan costs

Applying for a bridge loan with the same lender as your new mortgage can lead to cost savings. In such cases, you might not need to pay additional underwriting or mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s advisable to shop around and compare different options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option suits your needs best, considering the total costs, convenience, and suitability for your situation. More alternatives will be discussed in a later section.

Budget for closing costs

You should also budget for closing costs and various legal and administrative fees. These costs typically range from 1.5% to 3% of the loan amount and can include:

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

Note: A detailed example of how much a $300,000 bridge loan might cost, including possible fees, will be provided in the “Bridge loan cost example” table below.

Bridge loan cost example

Below is an example of how much a $200,000 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 Indiana house to sell. The asking price for the new home is $250,000. You can only come up with $50,000, but you have at least another $200,000 worth of equity in your current property. You want to access that money to cover the shortfall before selling your new home to another buyer.

*These closing costs typically range between 1.5%-3% 

Who provides bridge loans in Indiana?

In Indiana, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. If you’re considering a bridge loan, exploring options with various lenders is a good idea. The most common sources for bridge loans in Indiana include:

• Your mortgage lender: Start with the lender of your current mortgage; they might offer bridge loans to existing customers.
• Local banks: Some community banks in Indiana offer bridge loans with terms that might be more flexible than larger institutions.
• Credit unions: Member-owned credit unions often provide competitive loan options, including bridge loans.
• Hard-money lenders: These lenders focus on the collateral value of your property rather than your creditworthiness and can be a quicker funding source.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.

Additionally, modern real estate companies are increasingly facilitating the process of obtaining a bridge loan, streamlining the transition between buying and selling a home. More details on how this works will be shared later in this post.

Are there alternatives to bridge loans in Indiana?

While a bridge loan might not work for every Indiana 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 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 are typically 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 cannot do two owner-occupied loans within one year of one another. 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 debt-to-income 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?

Real estate solution companies like HomeLight incorporate bridge loans into convenient programs that simultaneously streamline the process of buying and selling a house in Indiana. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you complete your move to a new home, thereby reducing stress and worry.

With your Indiana agent, HomeLight can help you move into your new home with speed and certainty while helping you get the strongest possible offer for your old home. Check with your agent if HomeLight Buy Before You Sell 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 home sellers in Indiana:

1. Talk to a loan officer to get qualified and approved: Find out if your property is a good fit for the program and get your equity unlock amount approved in 24 hours or less. No cost or commitment is required.
2. House hunting and close on new home: Once approved, you’ll have access to a portion of your 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 home.
3. Sell your former home with peace of mind: After you move into your new home, work with a top agent to 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.

HomeLight’s Buy Before You Sell program is available in most states throughout the country.

For Indiana homeowners caught in the buy-sell conundrum, HomeLight’s Buy Before You Sell program offers a convenient and stress-reducing solution. Learn more program details at this link.

HomeLight also offers other services for homebuyers and sellers in Indiana, such as Agent Match, which helps you find the top-performing real estate agents in your market, and Simple Sale, a convenient way to receive a no-obligation, all-cash offer to sell your home in as little as 10 days.

You might also try HomeLight’s Net Proceeds Calculator as you plan your home sale.

A creative financing solution for Indiana homeowners

As Indiana homeowners face the challenges of a tight housing market and rising home prices, many are discovering the benefits of bridge loans to streamline buying a new home while selling their old one.

Bridge loans offer the advantage of borrowing against the equity in your previous home, providing a financial cushion that allows for more time to sell. This can significantly reduce the stress of perfectly aligning the sale and purchase timelines.

However, it’s important to remember that while bridge loans can offer great convenience during this transition, they can also be expensive and may not be the best fit for every situation.

For a more streamlined and potentially less uncertain option, consider HomeLight’s Buy Before You Sell program. This innovative approach can ease the uncertainty of your next home purchase. Additionally, HomeLight can connect you with a top-performing Indiana real estate agent experienced in handling bridge loans and other alternative financing solutions.

Header Source: (njproductions / Depositphotos)