If you’re in the midst of selling your Massachusetts home and on the hunt for your next dream property, you know that synchronizing both deals can be a nerve-wracking puzzle. Especially in a market where inventory is scarce and home prices are high, the balancing act can seem daunting.
Are you feeling cornered into selling first, moving out, and then scrambling to find a temporary rental while you search for your next home? A bridge loan might be the lifeline you need, offering a short-term financing solution that lets you purchase your new home even before you’ve handed over the keys to your old one.
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 Massachusetts, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan, in the realm of residential real estate, is your ticket to buying your next home without the agonizing wait for your current one to sell. Imagine it as a temporary financial bridge carrying you from one property to the next. Often referred to as a swing or bridging loan, it eases the transition for homeowners between homes.
However, it’s essential to note that a bridge loan can be pricier than your typical mortgage. Why? The lender is taking on a heftier risk. They’re essentially advancing the equity you’ve accrued in your present home, enabling you to seal the deal on your new residence.
How does a bridge loan work in Massachusetts?
Navigating the Massachusetts real estate market often means acting quickly, and a bridge loan could be crucial if you find your dream home before your current one sells. Essentially, the bridge loan uses the equity from your existing home to finance the down payment and closing costs of your new property.
In many cases, the lender handling your new mortgage will also provide your bridge loan. But most lenders will expect your current house to be actively listed for sale, and they typically extend the bridge loan for a period ranging from six months to a year.
Your financial picture during this time, especially your debt-to-income ratio (DTI), becomes important. Your DTI will factor in your current mortgage, the new one, and any interest-only payments on the bridge loan. But if your old home is already under a solid sales contract, your lender might only consider the mortgage payment on your new Massachusetts home when assessing your loan application.
This financial assessment helps to ensure you’re not overstretched if your previous home takes a little longer to sell than expected.
What are the benefits of a bridge loan in Massachusetts?
In Massachusetts, a bridge loan can give you a competitive edge and flexibility as a buyer in a tight market. Here are some of the key advantages:
- Non-contingent offers: You can make offers on new homes without the sale contingency of your current property, making your bid more attractive to sellers.
- Single move: You avoid the hassle and cost of multiple moves by staying in your current home until you close on your new one.
- Easier home staging: After moving to your new home, you can stage and potentially increase the sale value of your old one without juggling living in it.
- Deferred payments: Some lenders may offer the option to defer loan payments, giving you financial breathing room during the transition.
- Swift action on new listings: You can quickly move on a property you love, regardless of whether your current home has sold, ensuring you don’t miss out in a fast-moving market.
These benefits are particularly valuable for Massachusetts buyers who may be short on liquid funds before their home sells, allowing the bridge loan to be settled with the proceeds from their sale.
What are the drawbacks of a bridge loan?
While a bridge loan might seem like a perfect solution to your real estate timing issues, it’s important to weigh the potential downsides before proceeding:
- Additional costs: Expect to encounter extra expenses, such as underwriting fees and origination fees, that come with taking out a bridge loan.
- Financial burden: You may find yourself juggling payments for two mortgages plus the bridge loan, which can be a significant financial strain.
- Tougher qualification criteria: Getting approved for a bridge loan can be more challenging than for a standard mortgage, as lenders look at a wider range of factors.
- Slower underwriting process: The underwriting process for a bridge loan may take longer than anticipated, which can be stressful if you’re on a tight timeline.
- Equity requirements: Lenders will assess the equity in your current home. If you owe more than 80% of its value, you might not qualify.
Considering these drawbacks is crucial to ensure a bridge loan aligns with your financial situation and real estate goals.
When is a bridge loan a good solution?
A bridge loan can be the key to unlocking your next home purchase under the right circumstances. Here are situations where a bridge loan stands out as a practical solution:
- If the equity in your existing home is essential for the down payment on your new property.
- To avoid the hassle and expense of temporary housing, a bridge loan can enable a single move.
- In a competitive Massachusetts market where homes go quickly, a bridge loan gives you the agility to make an offer without delay.
- If your seller is not open to a home sale contingency, a bridge loan allows you to proceed with the purchase.
- When your current home requires staging or renovations to fetch the best price, a bridge loan can help you move out and start working on those improvements without the pressure of living on-site.
What’s required to get a bridge loan in Massachusetts?
To secure a bridge loan in Massachusetts, you’ll need to meet certain criteria:
- Qualifying income: Lenders will review your income to ensure you can handle payments on your existing mortgage, the new mortgage, and the bridge loan simultaneously.
- Sufficient equity: Typically, you should have a minimum of 20% equity in your current home, but some lenders may ask for more, up to 50%.
- Good credit history: A credit score above 650 is usually required, although the exact threshold can vary by lender. A higher score could result in better terms.
- Listed property: Many lenders require that your current home be on the market to confirm that you are working towards selling it within the bridge loan’s timeframe.
How much does a bridge loan cost in Massachusetts?
Typically, bridge loans have higher interest rates than traditional mortgages, often 1 to 3 percentage points more. This is due to the increased risk lenders take on, as there’s a chance your existing home might not sell within the expected timeframe. You’ll need to be financially prepared to cover both your mortgage and bridge loan payments should this occur.
Your individual rate will hinge on factors such as your credit score and the lender’s terms.
How to reduce bridge loan costs
You might find some savings if you obtain your bridge loan through the same lender as your new mortgage. This can sometimes eliminate additional underwriting and other fees since both loans will be processed simultaneously.
Shopping around is key. Comparing different lenders can provide a clear picture of not just the costs involved but also the convenience and compatibility with your specific needs. Remember, bridge loans are a temporary fix, and finding the right one for you could mean weighing more than just the financial implications.
Budget for closing costs
On top of the loan itself, closing costs add another layer to the budgeting process. These expenses, which can range from 1.5%–3% of the loan amount, include various fees such as:
- 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 Massachusetts house to sell. The new home’s asking price is $600,000. You can only come up with $300,000, 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 | $700 | $700 |
| Closing cost* | 2% | $6,000 |
| Total repayable amount | $327,200 |
*Expect to pay 1.5% to 3% in closing costs
What's Your Current Home Worth?
As you make plans to buy a new home, get a value estimate on your current house from HomeLight for free. Our tool analyzes 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 Massachusetts?
In Massachusetts, securing a bridge loan requires a bit of research due to their specialized nature and the detailed underwriting involved. Not every financial institution offers them, and the terms can vary significantly. To streamline your search, consider reaching out to the following types of lenders known for providing bridge loans:
- Your current mortgage lender: It is wise to start the conversation with your current mortgage lender. They already have a history with you and might be willing to offer favorable terms for a bridge loan.
- Local banks: These institutions often have a vested interest in supporting community members. They may provide more personalized service and be more flexible with loan terms.
- Credit unions: As member-focused organizations, credit unions can be a good source for a bridge loan. Their rates can be competitive since they’re not-for-profit entities.
- Hard-money lenders: If you need a bridge loan quickly and have substantial equity, these hard-money lending companies can be a solution. However, be prepared for higher interest rates and fees.
- Non-QM lenders: These lenders specialize in loans that don’t meet the strict criteria of conventional mortgages, which might make them more open to offering bridge loans.
Additionally, some innovative real estate companies in Massachusetts are set up to streamline the process of acquiring a bridge loan, offering integrated services that can ease the transition from selling to buying your next home. Details on how this option works will be provided further in our guide.
Are there alternatives to bridge loans in Massachusetts?
While a bridge loan might not work for every Massachusetts homeowner’s unique situation, there are alternatives to consider:
- Home equity loan: This kind of loan (sometimes called an 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 the 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 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 lets you avoid early withdrawal penalties but 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 Massachusetts. These “Buy Before You Sell” programs can provide a more complete “bridge” to help you successfully complete your move to a new home, thereby reducing stress and worry.
Together with your Massachusetts 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 Massachusetts:
1. Apply in minutes with no commitment: 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. Buy your dream home with confidence: Once you’re 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 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.
Benefits of Homelight Buy Before You Sell
- Flexible timelines: There is 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.
- More home sale earnings: After you move, you can list your old home unoccupied and potentially staged, which can lead to up to 13% more earnings, according to the HomeLight Top Agent Insights report.
For Massachusetts 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 Massachusetts, 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 Massachusetts homeowners
By leveraging the equity in your existing home, bridge loans offer you the freedom to make competitive offers on a new property without the immediate pressure of selling your old one. This can be particularly advantageous in fast-paced markets where the right home can come and go quickly.
However, bridge loans are not a one-size-fits-all solution. The higher costs and the potential risk of carrying two mortgages should be carefully weighed. They’re a creative financing tool, certainly, but they carry their own set of considerations.
HomeLight’s Buy Before You Sell program offers a more streamlined, less stressful alternative. It’s designed to alleviate the typical anxieties associated with bridging the gap between buying and selling, ensuring you’re not left juggling more than you can handle. Partner with a top-performing Massachusetts buyer’s real estate agent as you consider bridge loans in your real estate transaction.
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