Buying and selling homes in Maine often involves a tricky balance of timing and funds, especially in a market with low inventory and high prices. As a homeowner, you might feel cornered into selling your current home before you can afford to buy a new one, leading to the hassle of finding temporary housing in the interim.
However, a solution might fit your needs perfectly: a bridge loan. This short-term financing option is designed to help you purchase your new home in Maine before selling your old one, easing the transition and aligning the pieces of your real estate journey more smoothly.
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: As a friendly reminder, this post is intended for educational purposes, not financial advice. If you need assistance navigating the use of a bridge loan in Maine, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is essentially a financial lifeline for homeowners like you, caught in the transition of buying a new home while still owning the old one. Think of it as a short-term loan that taps into the equity of your current home, providing you with the necessary funds to make a down payment and cover closing costs on your new property.
While these loans are pricier than traditional mortgages, they offer a significant advantage: they allow you to swiftly secure your new home without waiting for your old one to sell. This can be a game-changer in a competitive real estate market like Maine’s, where timing is everything.
How does a bridge loan work in Maine?
A typical situation where you might find a bridge loan helpful is when you’re eager to snap up a new property before your current home has sold. This is where the equity in your existing home steps in to cover the down payment and closing costs for your new abode.
The financial institution arranging the mortgage for your new Maine home will often manage your bridge loan. They usually require that your current home is actively listed for sale, and they’ll offer the bridge loan for a period ranging from six months up to a year.
An important factor in this scenario is your debt-to-income ratio (DTI). This ratio will take into account your existing mortgage payments on your current home, the mortgage payments on your new home, and any interest-only payments on the bridge loan, if they apply.
However, there’s a silver lining. If your old home is already under contract, and the buyer has secured their loan approval, your lender might only consider the mortgage payment of your new home in the DTI calculation. This flexibility can be crucial, as lenders must be confident that you can comfortably manage payments on both properties in case your current home doesn’t sell as quickly as anticipated.
What are the benefits of a bridge loan in Maine?
Bridge loans in Maine offer several advantages that can make your home-buying experience more flexible and less stressful.
- You can make a non-contingent offer on your new home: This strengthens your buying position, especially in competitive markets.
- Only one move required: Avoid the hassle and cost of temporary housing by moving directly into your new home.
- Prepare your old home for sale at your leisure: More time to make it market-ready can potentially increase its value.
- Potential for no payments during the loan period: Some lenders offer this feature, easing your financial burden.
- Act quickly on the right property: Secure your new Maine home without waiting for your current one to sell.
These benefits make a bridge loan an appealing option for Maine buyers who need financial flexibility before accessing the equity from their previous home’s sale.
What are the drawbacks of a bridge loan?
While bridge loans can be a strategic solution for many homeowners, it’s important to consider their potential drawbacks:
- Additional loan costs: Expect underwriting fees, origination fees, and other associated costs.
- Increased financial burden: Managing payments for up to two mortgages plus a bridge loan can be stressful.
- Stricter qualification requirements: Qualifying for a bridge loan can be more challenging than a traditional mortgage.
- Potentially slower underwriting process: The approval process might take longer than anticipated.
- Equity requirements: Lenders assess the equity in your current home; owing more than 80% of its value could disqualify you.
Understanding these challenges is crucial in determining whether a bridge loan suits your financial situation.
When is a bridge loan a good solution?
A bridge loan isn’t always the go-to solution for every real estate scenario. Still, it can significantly ease the transition from your old home to a new one in certain situations.
Here are some instances where a bridge loan might be the right choice:
- You need the equity from your current home to make a down payment on a new one.
- Affording a double move and interim housing isn’t feasible, or synchronizing the sale and purchase timelines is crucial.
- Your ideal home has just come on the market, and you need to act fast to avoid competitive delays.
- Your offers with a home sale contingency are consistently rejected, and you need stronger purchasing power.
- You aim to sell your current home, either empty or staged, which can often be more appealing and potentially more profitable to buyers. This is especially relevant if you cannot prepare or stage your home effectively while still residing in it, as an unoccupied, well-staged home can significantly enhance its marketability and sale price.
What’s required to get a bridge loan in Maine?
To qualify for a bridge loan in Maine, you typically need to meet the following criteria:
- Qualifying income: Your lender will assess your income to ensure you can handle payments on your current mortgage, your new mortgage, and potentially an interest-only payment on the bridge loan.
- Sufficient equity: It’s essential to have at least 20% equity in your current home, though some lenders may require as much as 50%.
- Good credit history: A favorable credit score, usually above 650, is needed for most bridge loan programs. A higher score can secure better interest rates and terms. If you have a good payment history, check with your current mortgage lender for potential bridge loan options.
- Your current home listed for sale: Many lenders require it to be on the market, ensuring it’s likely to be sold before the bridge loan term ends.
How much does a bridge loan cost in Maine?
In Maine, 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 what you might find with a traditional mortgage. Additionally, bridge loans can incur extra transaction fees.
The reason for these higher costs is the increased risk to lenders. There’s always the possibility that your current home won’t sell within the expected timeframe, potentially leaving you with the financial responsibility of both your mortgage and bridge loan payments. It’s crucial to ensure you’re financially prepared for this scenario.
Your specific rate will depend on your credit score 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 cut costs. 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 beneficial to compare different lenders and bridge loan options. Bridge loans are a short-term solution, so consider what’s most financially viable and convenient for your situation.
Budget for closing costs
When budgeting for a bridge loan, don’t forget to account for closing costs and various legal and administrative fees. These 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
Understanding these costs will help you better prepare for the financial aspects of securing a bridge loan in Maine.
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 Maine house to sell. The new home’s asking price is $400,000. You can only come up with $100,000, 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.
| Net loan amount | $300,000 | $300,000 |
| Interest (varies) | 10% (example for 6 months) | $15,000 |
| Origination fee | 1.5% | $4,500 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $800 | $800 |
| Closing cost* | 1.3% | $3,900 |
| Total repayable amount | $325,200 |
*These closing costs typically range between 1.5%-3%
How Much Is Your Maine Home Worth Now?
Get a near-instant real estate house price estimate from HomeLight for free. Our tool analyzes the records of recently sold homes near you, your home’s last sale price, and other market trends to provide a preliminary range of value in under two minutes.
Who provides bridge loans in Maine?
In Maine, the availability of bridge loans may be more limited due to the specific underwriting requirements associated with this type of loan. Exploring options with various lenders is a good idea if you’re considering a bridge loan. The most common sources for bridge loans in Maine include:
- Your mortgage lender: Start with the lender of your current mortgage, as they already have a relationship with you.
- Local banks: Many local banks in Maine offer bridge loans and may provide more personalized service.
- Credit unions: These member-owned institutions often have competitive rates and may offer more flexible terms.
- Hard-money lenders: These are private investors or companies that offer loans based on property value rather than creditworthiness.
- Non-qualified mortgage (non-QM) lenders: These lenders provide loans that don’t meet the strict federal guidelines for mortgages, often allowing for more flexibility.
Some modern real estate companies also offer services to help you find a bridge loan, streamlining the gap between buying and selling a home. More details on this will be provided later in the post.
Are there alternatives to bridge loans in Maine?
While a bridge loan might not work for every Maine 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 lets you pull money out of your property for a relatively low interest rate. Instead of receiving the money immediately, your lender will extend a line of credit for you to borrow against. You may 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 than regular refinances but lower than 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 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?
With today’s technology, there are real estate solution companies like HomeLight that incorporate bridge loans into convenient programs that streamline the process of buying and selling a house at the same time in Maine. 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 Maine 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 to see 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 Maine:
- 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.
- 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.
- 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.
Benefits of HomeLight Buy Before You Sell
- Flexibility in timelines: No need to sync up sale and purchase dates perfectly. This program gives you breathing space to plan your move without feeling hurried.
- Financial peace of mind: Say goodbye to the stress of potential double mortgages or dipping into savings to bridge the gap between homes.
- Enhanced buying power: In a seller’s market, a non-contingent offer can stand out, increasing your chances of landing your dream home.
- Up to 13% more home sale earnings: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to data from HomeLight’s 2023 Top Agents Insight Report.
For Maine 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 Maine, 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 Maine homeowners
As Maine homeowners face the challenges of a tight housing market and rising home prices, many are considering 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 additional time to sell and reducing the stress of perfectly timing the transactions. This type of financing can be a highly convenient solution for homeowners navigating this transition. However, it’s important to remember that it can come with higher costs and may not be suitable for everyone.
Consider HomeLight’s Buy Before You Sell program for a more tailored approach. This innovative solution is designed to alleviate the uncertainty of your next home purchase. Additionally, HomeLight can connect you with a top-performing Maine real estate agent experienced in bridge loans and other home-buying strategies.
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