Leverage Your Home Equity to Buy Before You Sell: Maryland Bridge Loans Explained
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Richard Haddad Managing EditorClose
Richard Haddad Managing EditorRichard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Navigating the real estate market in Maryland can feel like a high-stakes balancing act, especially when trying to sell your old home and simultaneously secure your new dream house. The challenge becomes even more daunting in a market characterized by low inventory and soaring prices. Often, it might seem like your only option is to sell your current property, find temporary accommodation, and then embark on the hunt for your new home.
However, there’s a strategic solution that might just be the perfect fit for your situation: a bridge loan. This short-term financing option offers a seamless transition by empowering you to purchase your new Maryland home before selling your old one, ensuring you don’t have to juggle between selling, moving, and buying in a tight timeline.
In this guide, we’ll present the mechanics, pros, cons, and alternatives to bridge loans, in Maryland, ensuring you have all the tools you need to make the best decision on how to “Buy Before You Sell.”
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 Maryland, HomeLight encourages you to reach out to your own advisor.
What is a bridge loan, in simple words?
A bridge loan is an interim financial solution for homeowners like you, designed to facilitate the purchase of a new home in Maryland before selling your current one. It uses the equity in your existing home to provide immediate funds for a down payment and closing costs on your new property.
Essentially, it acts as a temporary bridge, filling the financial gap between buying your new home and selling the old one.
Bridge loans are typically short-term, usually lasting six months to a year, with the possibility of extension based on your financial situation and the lender’s policy. Keep in mind that these loans often have slightly higher interest rates than traditional mortgages due to their brief term and the inherent risks for lenders.
How does a bridge loan work in Maryland?
In Maryland, a common scenario where you might find a bridge loan incredibly useful is when you’re eager to secure your new home before your current property has sold.
Here’s how it typically unfolds: You use the equity from your existing home to cover the down payment and closing costs of your new property. This strategy is particularly advantageous in Maryland’s competitive real estate market, where waiting to sell before buying might mean missing out on your ideal home.
Who handles the loan: Often, the same lender who’s handling your mortgage for the new home will also provide your bridge loan. They usually require that your current home is actively listed for sale and offer the bridge loan for a period ranging from six months to a year.
Balancing debt: A key factor in this process is your debt-to-income ratio (DTI). Your lender will calculate this ratio by considering the payments on your existing mortgage, the payments for the new home, and any interest-only payments on the bridge loan. However, if your current home is already under contract and the buyer is fully approved for their loan, your lender might only consider the mortgage payment of your new home in the DTI calculation.
This flexibility is crucial as it helps ensure that you can comfortably manage payments on both properties during the transition period, particularly if your current home doesn’t sell immediately.
What are the benefits of a bridge loan in Maryland?
In Maryland, bridge loans offer several benefits that make them an attractive option for homebuyers facing the common dilemma of needing to buy a new home before selling their old one. Here are some of the key advantages:
- Allows non-contingent offers: You can make a strong, non-contingent offer on your new home, which is especially beneficial in competitive markets.
- Single move convenience: Avoid the hassle and cost of moving twice by transitioning directly from your old home to the new one.
- Prepare your old home for sale: You get the opportunity to vacate and then prepare your old home for sale, potentially increasing its market value.
- Possible payment flexibility: Some lenders may offer terms where no payments are required during the loan period, easing your financial burden.
- Quick action on new properties: Enables you to act swiftly on purchasing the right property without being tied down by the sale status of your current home.
These benefits collectively make bridge loans a practical and convenient financing option for Maryland buyers who need immediate liquidity before the sale of their previous home.
What are the drawbacks of a bridge loan?
While bridge loans offer flexibility and can ease the transition between selling and buying homes, they also come with certain drawbacks that are important to consider:
- Additional loan costs: Expect costs like underwriting fees, origination fees, and others associated with securing a bridge loan.
- Increased financial burden: Managing payments for up to two mortgages plus a bridge loan (even if interest-only) can be financially challenging.
- Stricter qualification criteria: Qualifying for a bridge loan can be more complex compared to traditional mortgage loans.
- Slower underwriting process: The underwriting process for bridge loans can sometimes take longer than expected, potentially delaying your plans.
- Equity requirements: Lenders will assess the equity in your current home; owing more than 80% of its value could disqualify you from obtaining a bridge loan.
These factors highlight the importance of carefully considering your financial situation and consulting with a financial advisor before deciding on a bridge loan.
When is a bridge loan a good solution?
A bridge loan isn’t the right choice for every real estate transaction, but in certain situations, it can significantly ease the transition from your current home to a new one. Here are scenarios where a bridge loan might be the ideal solution:
- You need the equity from your current home to make the down payment on a new one.
- Affording a double move and interim housing is challenging, or bridging the sale and purchase timelines is crucial.
- Your ideal home is on the market, and you need to act fast to avoid losing it in a competitive market.
- Your offers with a home sale contingency keep getting rejected, and you need more immediate purchasing power.
- You’re aiming to sell a vacant or staged home, which can often be more appealing to buyers and potentially more profitable.
Especially if you’re unable to prepare or stage your current home for sale while still living in it, a bridge loan offers a practical solution. It allows you to move out, thus enabling you to stage or renovate the property. This can not only speed up the sale but also potentially increase your home’s market value, making the bridge loan a strategic financial move.
What’s required to get a bridge loan in Maryland?
To qualify for a bridge loan in Maryland, there are several key requirements you’ll need to meet:
- Qualifying income: Lenders will assess your income to ensure you can manage payments on your current mortgage, new mortgage, and any interest-only payments on the bridge loan.
- Sufficient equity: You need to have significant equity in your current home, typically at least 20%, though some lenders may require up to 50%.
- Good credit history: A good credit score, usually above 650, is essential. This score affects your interest rate and other factors like the loan-to-value ratio. The higher your score, the better the terms you might receive.
- Home listed for sale: Many lenders will require that your current home is listed for sale, ensuring that it will likely be sold by the time your bridge loan term ends.
How much does a bridge loan cost in Maryland?
The cost of a bridge loan in Maryland generally exceeds that of a standard mortgage. You can expect the interest rates to be about 1-3 percentage points higher than those of a typical mortgage loan. In addition to the higher interest rates, bridge loans often involve additional transaction fees.
This increased cost is due to the higher risk bridge loans pose to lenders. It’s important to consider the possibility of your current home not selling within the expected timeframe, which could result in you needing to cover both your mortgage and bridge loan payments simultaneously. Ensure you’re financially prepared for this scenario before proceeding.
The specific rate you’ll be offered largely depends on your creditworthiness and the type of lender you choose.
How to reduce bridge loan costs
If you’re obtaining a bridge loan from the same lender as your new mortgage, you may not need to pay additional underwriting or mortgage fees. This is because both your bridge loan and mortgage will be underwritten and approved concurrently.
It’s advisable to compare options across different lenders. Remember, bridge loans are intended as a short-term solution, so evaluate what financing option aligns best not just with your financial situation, but also with your convenience and overall needs. We will explore more options in an upcoming section.
Budget for closing costs
You should also account for closing costs, legal fees, and administrative expenses associated with obtaining a bridge loan. 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
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 Maryland house to sell. The new home’s asking price is $500,000. You can come up with $300,000, 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 your new home is sold to another buyer.
| Net loan amount | $200,000 | $200,000 |
| Interest (varies) | 10% (example for 6 months) | $10,000 |
| Origination fee | 1.5% | $3,000 |
| Underwriting fee | $1,000 | $1,000 |
| Appraisal fee | $450 | $450 |
| Closing cost* | 2% | $4,000 |
| Total repayable amount | $218,450 |
*These closing costs typically range between 1.5%-3%
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 Maryland?
In Maryland, while bridge loans are a specialized product with unique underwriting requirements, there are still several types of financial institutions and lenders that offer them. If you’re considering a bridge loan, it’s a good idea to explore various options before committing. The most common sources for bridge loans in Maryland include:
- Your mortgage lender: The lender handling your new home’s mortgage may also offer bridge loans.
- Local banks: Many local banks provide bridge loan services, often with terms tailored to the local real estate market.
- Credit unions: These member-owned institutions can be a source for bridge loans, sometimes offering more favorable terms.
- Hard-money lenders: These are private investors or companies specializing in short-term lending, often at higher interest rates.
- Non-qualified mortgage (non-QM) lenders: These lenders provide loans that don’t meet the strict federal guidelines for mortgages, including bridge loans.
Additionally, modern real estate companies have entered the market, offering services to streamline the process of obtaining a bridge loan for your home purchase and sale. We’ll share how these programs later in this article.
Are there alternatives to bridge loans in Maryland?
While a bridge loan might not work for every Maryland 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 Maryland. 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 Maryland 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 Maryland:
- 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.
- 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.
- 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 Maryland 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 Maryland, 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 Maryland homeowners
As Maryland homeowners face the challenges of a tight housing market and high property values, many are discovering that bridge loans offer a strategic solution to the complex process of buying a new home while selling their old one.
Bridge loans enable homeowners to use the equity from their previous home toward their new purchase. This financial flexibility gives you more time to sell your old home, alleviating much of the stress related to syncing the sale and purchase timelines.
While bridge loans can be an exceptionally convenient option during this transition, they come with higher costs and might not be suitable for everyone’s financial situation.
For a more streamlined approach, consider HomeLight’s Buy Before You Sell program. This streamlined program is designed to reduce the uncertainty surrounding your next home purchase. Additionally, HomeLight can connect you with a highly skilled Maryland buyer’s agent who is well-versed in the intricacies of bridge loans, ensuring you have expert guidance every step of the way.
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