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

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Managing the sale of your Austin home while trying to purchase a new one can be difficult. With rising prices in a market where homes are in high demand, timing your sale and purchase can be particularly challenging.

Homeowners often feel their only option is to sell their current home, move into temporary accommodation, and search for their new house.

But what if there was a better way to transition from your old home to your new one?

Enter the bridge loan.

This short-term financing solution can provide the funds you need to secure your new Austin home before selling 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: 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 Austin, HomeLight encourages you to reach out to your own advisor.

What is a bridge loan, in simple words?

A bridge loan is a temporary solution designed to “bridge the gap” between selling your current home and buying a new one. Imagine you’ve found your dream home, but your funds are tied up in your existing home’s equity.

A bridge loan lets you leverage the equity in your current home to provide the necessary cash for a down payment and to handle closing costs for your new house.

Although they tend to be pricier than traditional mortgages, bridge loans offer flexibility when trying to secure your new home purchase without waiting to sell your old one.

How does a bridge loan work in Austin?

A bridge loan often comes into play when you’re eager to snap up a new property before your old home has sold. It’s a common scenario: you’ve found the perfect new home but need to access the equity from your current home to cover the down payment and closing costs for this new venture.

Typically, the lender handling your mortgage for the new Austin property will also manage your bridge loan. They’ll require that your existing home is actively listed for sale. These bridge loans are generally available for a period ranging from six months to a year.

The lender will calculate your debt-to-income ratio (DTI). This calculation will include the ongoing mortgage payments on your current Austin home, the payments for the new property, and any interest-only payments on the bridge loan, if applicable.

If your old home is already under contract with a buyer who has secured their loan approval, your lender might only consider the mortgage payments for your new home. This is done to ensure that you can comfortably manage payments on both properties, providing a safety net in the unlikely event that your current home doesn’t sell quickly.

What are the benefits of a bridge loan in Austin?

Bridge loans offer several advantages for Austin homebuyers, making them an appealing option in the competitive real estate market:

  • You can make a non-contingent offer on your new home.
  • Only one move is required, saving time and stress.
  • Prepare your old home for sale more effectively, including staging.
  • Some lenders offer no payments during the loan period.
  • Act quickly on ideal properties without waiting for your current home’s sale.

These benefits make bridge loans a strategic choice for Austin buyers needing financial flexibility before their previous home sells, allowing them to utilize sale proceeds to settle the bridge loan.

What are the drawbacks of a bridge loan?

While bridge loans offer unique advantages, it’s important to consider their potential drawbacks:

  • Additional loan costs like underwriting and origination fees.
  • Financial strain from managing two mortgages and a bridge loan, even if it’s interest-only.
  • More challenging qualification criteria compared to traditional mortgage loans.
  • Potentially slower underwriting process than anticipated.

Lenders will evaluate your equity in your current home alongside your monthly income to assess your borrowing eligibility. If your current home’s value exceeds 80% of what you owe, qualifying might be difficult.

When is a bridge loan a good solution?

A bridge loan can be a practical solution in certain real estate scenarios:

  • Equity from your current home is needed for a new home’s down payment.
  • Affording a double move and interim housing is challenging, or bridging sale and purchase timelines is crucial.
  • Your dream home is available, and immediate action is required to avoid competitive delays.
  • Your offer’s home sale contingency has hindered deals, and you seek immediate purchasing power.
  • Selling a staged home can be more profitable, and a bridge loan allows you to prepare or stage your current home for sale while still living in it, enhancing its market appeal and potential selling price.

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

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

  • Qualifying income: Your lender will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and potentially an interest-only payment on the bridge loan.
  • Sufficient equity: At least 20% equity in your current home is necessary, though some lenders may require up to 50%.
  • Good credit history: A credit score above 650 is usually needed, affecting your interest rate and other qualifications like loan-to-value ratio. Checking with your current mortgage lender, particularly if you have a good payment history, is advisable, as they might offer bridge loans.
  • Your current home listed for sale: Some lenders may need proof that your current home is on the market, ensuring its sale by the bridge loan’s end.

How much does a bridge loan cost in Austin?

A bridge loan in Austin typically comes with a higher interest rate compared to a standard mortgage. You can expect rates to be about 1-3 percentage points higher than those for a typical mortgage loan. Additionally, bridge loans may include various transaction fees.

The elevated costs are linked to the increased risk lenders take on. It’s important to remember that there’s always a chance your current home may not sell within the expected timeframe. Should this happen, you must be financially prepared to cover your mortgage and bridge loan payments.

The specific rate you receive 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 help reduce costs. In such cases, you might not need to pay additional underwriting or mortgage fees, as both loans will be processed together.

It’s beneficial to compare options across different lenders. Remember, bridge loans are meant as a short-term solution, so it’s crucial to find the option that suits your needs financially and in terms of convenience.

Budget for closing costs

Don’t forget the closing costs and legal fees when budgeting for a bridge loan. 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

Bridge loan cost example

Below is an example of how much a $250,000 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 Austin house to sell. The new home’s asking price is $500,000. You can only come up with $250,000, but you have at least another $250,000 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 $250,000 $250,000
Interest (varies) 10% (example for 6 months) $12,500
Origination fee 1.5% $3,750
Underwriting fee $1,000 $1,000
Appraisal fee  $700 $700
Closing cost* 2% $5,000
Total repayable amount  $272,950

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

How Much Is Your Austin 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 Austin?

The availability of bridge loan products may be limited due to their specific underwriting requirements. If you’re considering a bridge loan, exploring various lending options’s a good idea. Common sources for bridge loans in Austin include:

  • Your mortgage lender
  • Local banks
  • Credit unions
  • Hard-money lenders
  • Non-qualified mortgage (non-QM) lenders

Additionally, modern real estate companies are emerging as a convenient option. These companies can streamline securing a bridge loan, making the transition between buying and selling a home smoother. We’ll delve into how this works later in the post.

Are there alternatives to bridge loans in Austin?

While a bridge loan might not work for every Austin 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 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?

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 Austin. 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 Austin 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 Austin:

  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 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 strongest offer possible. You’ll receive the remainder of your equity after the home sells.

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.
  • Sell for up to 10% more: After you move, you can list your old home unoccupied and potentially staged, which can lead to a higher selling price, according to HomeLight transaction data.

For Austin 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 Austin, such as Agent Match to 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 Austin homeowners

As Austin homeowners face the challenges of a competitive housing market and rising home prices, many are discovering the benefits of bridge loans. These loans offer the flexibility to borrow against the equity in your previous home, easing the pressure of timing your sale and new purchase.

Bridge loans can significantly simplify the transition between homes, giving you the breathing room needed to sell at the right time. However, while they offer convenience, bridge loans can be costly and might not be the ideal solution for everyone.

Consider HomeLight’s Buy Before You Sell program for a more streamlined and certain approach. This innovative solution reduces the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a top-performing Austin real estate agent experienced in navigating bridge loans and alternative financing options.

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