Buy Before You Sell

Bridge Loans

A bridge loan is a short-term financing option that allows you to tap into the equity of your current property to use towards the purchase of your new home.

Young couple with their dog and a new home

Benefits

  • Ability to buy before selling
  • Best options have 0% interest and $0 payments on down payment funds
  • Fast closing timelines – as fast as 14 days
  • Buyer has up to 7 months to sell their existing property after they purchase their new home

Eligibility

  • Borrow up to 75% loan-to-value (LTV) of current home's value
  • Demonstrate equity in current departing residence
  • Loan amounts from $200K to $2.5MM (up to $5MM available in the SF Bay Area)
  • Primary residences only

What Is A Bridge Loan?

A bridge loan is a short-term financing option that allows you to tap into the equity of your current property to use towards the purchase of your new home. Doing this allows you to buy before selling and allows you to ignore your existing housing expenses when qualifying for a new home.

There are many options for bridge loans and qualifications will vary depending on your lender. JVM does not offer bridge loans directly but partners with several bridge loan investors who originate the bridge loan, with JVM originating the purchase money loan!

Most buyers typically prefer to sell their current property after buying their new home to avoid the hassle of moving twice and the uncertainty around finding temporary housing.

With traditional financing options, buying before selling is often not feasible for most people for a few reasons. First, buyers would need to have enough income to support two housing payments at once – a rare occurrence when looking to upgrade to a more expensive home. Second, many buyers need the equity in their current home as a down payment for a new home. The bridge loan solves both of these problems and provides access to additional funds that are locked away in your home’s equity without the hurdles of selling and moving first.

Don’t keep your current home’s equity locked away – let it work to help you on your next purchase so you can buy first and sell later. With our bridge loan solutions, your new home has the loan size, rate, and payment you need, right from the get-go.

How Does A Bridge Loan Work?

Bridge loans can be confusing for some homebuyers, especially since there are so many different bridge loan products available. While JVM does offer several solutions, for the purpose of this blog we will focus in on our most popular solution: the 0% rate, $0 bridge loan.

For this lowest cost bridge loan, JVM partners with an outside investor dedicated to providing consumers with the easiest and most affordable solution available. We will calculate the available bridge loan amount based on the total value of your current property and will not require you to pay off any current mortgage debt until your property is sold.

After a high-level review of your financial profile, our bridge lending partner will issue a pre-qualification letter for your new purchase. The basic information gathered in this initial review will include:

  • Confirmation of your credit score and a review of the total amount of debt held against your current property
  • An estimate of value and projected sale price, provided to the lender by your Realtor

Once the lender is comfortable with your financials and issues the pre-qualification letter, you can immediately start placing offers and including the committed bridge loan amount as part of your down payment! This will make your offer appear even stronger to sellers and listing agents.

For this program, our bridge lender will calculate the total amount they will lend by taking 75% of the expected sale price of your current home and subtracting any existing loans against the property. This will include loans like your current mortgage, a home equity loan, and any other liens, like a solar lien. We have broken this down for you in the example below.

If that method still leaves you short the funds you need, we have several other bridge partners with whom we can get you qualified. Keep in mind that these solutions will carry higher interest rates and fees.

Example Bridge Loan Scenario

  • Current home’s expected sale price: $1MM
  • 75% Value Adjustment: $750k
  • Current Property Mortgage = $300K
  • Bridge Loan Amount Available = $450k ($750k adjusted value – $300k loan amount)

For The Purchase

  • New Home Price: $1.6MM
  • Bridge Loan: $450k
  • Purchase Loan from JVM: $1.15MM

After The Purchase

  • Old home sells for $1MM
  • Bridge loan is paid back: $450,000
  • Bridge loan service fee paid: $24,000 (2.4% of sale price)
  • Existing mortgage paid off: $300,000
  • Realtor commissions and sale costs (estimated): $60,000
  • Net Sale Proceeds: $166,000

Bridge Loan Interest Rates and Fees

You will pay 0% interest and $0 per month on the bridge while working to sell your existing property. This is a very big saving when compared with traditional bridge loans that would charge 10%+ rates as you wait for your existing home to sell, and would charge you 1.5% – 2% upfront as an “origination fee” when obtaining the bridge loan.

With this program, you pay the 2.4% service fee at the very end from the sale proceeds of your home. This way, you are not spending cash out of pocket to obtain the money needed for a down payment on your new home.

After the first 90 days have passed, you will start accruing prorated holding costs from the investor for bridge loan interest, property taxes, insurance, and any other costs of ownership. These will not be due until the home sells, and will be taken out of the sale proceeds.

View mortgage rates for March 5, 2024

Pros and Cons of Bridge Loans

Pros

Fast Closing Timeline

With our bridge partners, you can take advantage of JVM Lending’s Fast 14 Day Close and write extremely aggressive offers.

Non-Contingent Offers

To qualify for a traditional loan, most lenders will ask that you sell your home first so the current payment on the property can be excluded. If this is the case, you must write a contingent offer, which requires that your home sells before closing on the new purchase.

The problem is that in competitive markets, sellers are hesitant to consider any offers with a home sale contingency since there is too much risk in waiting for another home to be sold. Additionally, if the market is hot, sellers will often have too many offers on the table to validate taking that risk. For this reason, buyers with sale contingencies in place usually have their offers overlooked by sellers..

Bridge finance can solve this problem for a buyer, and allow them to buy before they sell, both accessing the equity available in their existing home and excluding any debts associated with it.

Lenient Approval Guidelines

Bridge lenders will primarily focus on a buyer’s existing equity for qualifying criteria since they do not need to meet “ability to repay” requirements set by the federal government. This is opposed to traditional lenders who must consider income, assets, and credit to decide on approval. Bridge lenders will still consider your overall financial profile, but can make exceptions on a more regular basis compared to financing options with established guidelines

More Convenient Than Moving Twice

With traditional financing, if someone cannot qualify for the mortgage payment on a new home before paying off their existing mortgage, their typical timeline is:

  1. Sell their current home
  2. Move into temporary housing
  3. Buy their new home
  4. Move into the new home

Anyone who has experienced a big move understands the headache this situation presents. A bridge loan allows you to move into a new home and sell a departing residence at your own pace without moving multiple times.

Cons

Fees for the Service

As the old saying goes, there is no “free lunch”. Bridge lenders are offering these loans so that they, too, can make money. While our solution is the most affordable option on the market, it does still require a 2.4% fee based on the price of the existing home, once it sells. The massive advantage is that as you work to sell that property, you will not pay absolutely anything to the bridge lender, and there is no interest rate attached to the bridge loan amount.

JVM has traditional bridge loan solutions available, too, that can help buyers generate more available funds for a new purchase. These solutions will cost around 1.5% – 2% in fees upfront and will charge a monthly interest rate until the existing home is sold and the loan is completely paid off.

Two Loan Payments

Until the old property is sold, buyers will need to juggle two monthly loan payments: the mortgage on their old home and the mortgage on their new home. On average most buyers will sell their old residence and pay off that loan after 3-4 months, so this may only be a short-term problem. But it is still important to plan ahead!

For owner-occupied primary residence bridge loans, JVM offers 0% interest on the bridge loan funds provided to the buyer!

SF Bay Area Special: Clients who own their home in the Bay Area will NOT need to make two loan payments. Our investor partners in the Bay Area will completely pay off the mortgage on your departing home, so only one mortgage payment must be made

Requires Substantial Equity For Approval

Since the bridge lender will discount the expected sale price by 25%, buyers will realistically need around 30%+ in equity to take advantage of this program. So, people who have recently purchased their existing home may not yet have enough value built up to take advantage of the program.

View mortgage rates for March 5, 2024

Bridge Loan Alternatives

Other Hard Money Bridge Loan Alternatives

JVM has numerous investors who offer their own variation of bridge financing, with small nuances and exceptions. For the sake of brevity, the above descriptions focus primarily on our 0% interest, $0 payment bridge loan partner. However, if your situation does not fit their box, do not fret! If you have even 10% – 20% equity available in your current home, we have alternative options available for you. Reach out to our team to learn more.

Sell First with a Seller Rent-Back

When you are looking to sell your home, you will often be able to negotiate additional items into the contract with the buyer. One common stipulation is asking the buyer for a seller rent-back, where you delay your move-out date and rent the property back from the buyers for a set amount of time.

If the buyer is purchasing your home using owner-occupied mortgage financing, you can only ask them for a maximum rent-back of 59 days since loan guidelines require them to occupy the property within 60 days after closing. If the buyer uses an investment loan, or purchases the home all-cash, you can negotiate a much longer rent-back period, which could give you all the time you need to find and buy your new home.

While this may put a hard deadline on your home search, this is often the cheapest and most convenient option for homeowners looking to upgrade in their move without moving twice. To take advantage of this route, you can enter the process well-prepared by obtaining a JVM pre-underwritten pre-approval letter before selling your existing home, so that you are immediately ready to buy the next one.

A fully pre-underwritten pre-approval will ensure you’re able to start offering on new homes as soon as the buyers are ready to close escrow on your home.

Departing Rental Income

If you cannot qualify with both housing payments in full, you can rent your current primary residence to offset some of the monthly expenses you have on that home. All you will need from the renter is a signed lease agreement and a security deposit prior to closing on your new purchase.

This added rental income can help make qualification more realistic given that you’ll still be responsible for 2 mortgage payments. Finding a renter on such short notice might be a challenge, but you can start collecting rental applications as soon as you are pre-approved for your new home purchase.

Home Equity Line of Credit (HELOC) or Home Equity Loan (HELOAN)

HELOCs and HELOANs are second mortgage loans that allow you to tap into your current property’s equity. These options offer lower interest rates than hard money loans, lower closing costs than hard money loans, and a longer timespan to repay the balance. Some HELOCs may include negligible prepayment penalties for loans that are closed within a certain period of opening.

The drawback of either option is that this is yet another additional monthly liability to account for, so borrowers who cannot qualify with both housing payments will not be able to use this solution. Jumbo loans can be particularly strict on newly opened HELOCs, limiting buyers from targeting the most aggressive rate options for jumbo loans.

Is a bridge loan right for you?

There is no one-size-fits-all for mortgage financing. The best way to determine whether a bridge loan makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.

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