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

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

To qualify for a bridge loan in Michigan, you must meet the following criteria:

• Qualifying income: Your lender will assess your income to ensure you can manage payments on your current mortgage, your new mortgage, and potentially an interest-only payment on 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 favorable credit score, usually above 650, is necessary. This score influences your interest rate and other factors like loan-to-value ratio. Higher scores are always advantageous.
• Currently listed home: Some lenders may require evidence 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 Michigan?

A bridge loan in Michigan typically comes with a higher interest rate than a standard mortgage. Interest rates should be about 1 to 3 percentage points higher than those for a conventional mortgage loan. Additionally, bridge loans may include various transaction fees.

The elevated cost is due to the increased risk lenders take on with bridge loans. Consider the possibility that your current home might not sell within the expected timeframe, which could lead to the need to cover both your mortgage and bridge loan payments simultaneously.

Your specific rate will largely depend 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 reduce costs. In such cases, you might not need to pay extra for underwriting or other mortgage fees, as your bridge loan and new mortgage will be processed together.

It’s advisable to shop around and compare options. Remember, bridge loans are meant as a short-term solution. Evaluate what financing option aligns best with your needs, considering the total costs, convenience, and suitability.

Budget for closing costs

In addition to interest and fees, you’ll also need to budget for closing costs and other legal and administrative expenses. These costs typically range from 1.5% to 3% of the loan amount and can include:

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

Understanding these costs upfront will help you budget effectively for your bridge loan in Michigan.

Bridge loan cost example

Below is an example of how much a $140,000 bridge loan might cost, along with possible fees.

You find a home you’d like to purchase but still wait for your current Michigan house to sell. The asking price for the new home is $250,000. You can only come up with $110,000, but you have at least another $140,000 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% and 3% 

Who provides bridge loans in Michigan?

In Michigan, the availability of bridge loans may be somewhat limited due to the specific underwriting requirements associated with this type of loan. Exploring options with various lenders is a good idea for a bridge loan. The most common sources for bridge loans include:

• Your mortgage lender: Start with the lender of your current mortgage. They might offer bridge loans as part of their services.
• Local banks: Many community banks in Michigan provide personalized financing options, including bridge loans.
• Credit unions: These member-owned institutions often have competitive rates for bridge loans.
• Hard-money lenders: These are private investors or companies offering higher-interest, short-term loans.
• Non-qualified mortgage (non-QM) lenders: These lenders offer loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.

Additionally, some modern real estate companies specialize in finding bridge loans for their clients, making the process of bridging the gap between buying and selling a home more streamlined.

Are there alternatives to bridge loans in Michigan?

While a bridge loan might not work for every Michigan 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 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 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. 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 take a first and second mortgage out simultaneously to fund your new purchase — 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. While it keeps you from paying early withdrawal fees and taxes, 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 must include this monthly payment when calculating your debt-to-income ratio. If your 401k plan allows, you can borrow up to $50,000 for your new purchase.

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

Real estate solution companies like HomeLight can incorporate bridge loans into convenient programs that streamline the buying and selling of a house in Michigan. 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 Michigan agent, HomeLight can help you move into your new home with speed and certainty while helping you get the most substantial possible offer for your old home.

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 Michigan:

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 approved, you’ll have access to a portion of your equity in your current home. You can 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 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 most substantial offer possible. You’ll receive the remainder of your equity after the home sells.