Bridge Loans in Ohio: Smart Equity Use to Buy Before You Sell

If you’re juggling the sale of your current Ohio home with the purchase of a new one, it might feel like walking a financial tightrope. This balancing act becomes even more challenging in a market where inventory is low, and prices are high. You might think the only option is to sell your old home, move to a temporary location, and then embark on the hunt for your new home.

However, there’s a financial tool that could be the key to seamlessly aligning these moving parts: a bridge loan — empowering you to purchase your new home before selling your current one.

In this post, we’ll provide insights and tips about bridge loans in Ohio. We’ll also share an overview of a Buy Before You Sell program that can streamline the entire process.

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 Ohio, 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 real estate, is akin to a financial stepping stone. It’s designed for homeowners like you who are in the midst of transitioning from your current home to a new one.

Think of it as a temporary loan that taps into the equity of your existing home. This equity is then used to provide you with the necessary funds to make a down payment and handle closing costs on your new home in Ohio.

These loans are generally short-term and, admittedly, can be more costly than traditional mortgages. However, their real advantage lies in their convenience and speed. A bridge loan enables you to proceed with purchasing your new home without the pressure of having to wait for your old home to sell.

How does a bridge loan work in Ohio?

In Ohio, a common scenario where you might find a bridge loan remarkably useful is when you’re eager to secure your new home before your current property has sold.

How a bridge loan unfolds: You can use the equity from your existing house to cover the down payment and closing costs of your new home. This strategy is particularly advantageous in Ohio’s low-inventory housing market, where waiting to sell before buying could mean missing out on your dream home.

The bridge loan provider: Often, the same lender who is handling the mortgage for your new home will also provide your bridge loan. Most lenders will require that your current property is listed for sale. A bridge loan is typically offered for a period of 6–12 months.

The temporary debt juggling act: A key factor in the bridge loan process is your debt-to-income ratio (DTI). Your lender will determine this ratio through an equation that involves the payments on your existing mortgage, the payments for the new house, and any interest-only payments on your bridge loan. However, if your current home already has a signed sales contract and the buyer is pre-approved for their purchase loan, your lender might only consider the mortgage payment of your new property in the DTI calculation.

Lenders want to be confident that you can successfully manage payments on both properties during the transition period. You’ll need to be financially pliable if your current home doesn’t sell right away.

What are the benefits of a bridge loan in Ohio?

Bridge loans in Ohio offer a range of benefits, making them an attractive option for homebuyers managing the transition between selling and buying homes.

• You can make a non-contingent offer: In Ohio’s competitive market, this strengthens your position as a buyer.
• Single move convenience: Avoid the hassle and expense of multiple moves by transitioning directly to your new home.
• Prepare your old home for sale with ease: Once you’ve moved out, you can stage and sell your old home without living in it.
• Possible payment flexibility: Some lenders may offer periods without required payments during the loan term.
• Act quickly on new opportunities: Secure your new home promptly without waiting for your current home to sell.

What are the drawbacks of a bridge loan?

Bridge loans, while offering seamless convenience, come with their own set of drawbacks that are important to consider:

• Additional loan costs: Expect underwriting fees, origination fees, and other expenses associated with bridge loans. (More on loan costs below.)
• Increased financial pressure: You may face the challenge of managing payments for two mortgages plus the bridge loan simultaneously.
• Stricter qualification criteria: Qualifying for a bridge loan can be more demanding than for a traditional mortgage.
• Potential for slower underwriting: Depending on your lender and creditworthiness, the underwriting process for bridge loans can sometimes take longer than expected.
• Equity requirements in your current home: Lenders assess the equity in your existing home; owing more than 80% of its value could disqualify you.

When is a bridge loan a good solution?

A bridge loan might not be the right choice for every real estate situation, but in certain scenarios, it can significantly ease the transition from your current home to a new one. Here are some instances where a bridge loan could be a beneficial solution:

• You need to access the equity from your current home to fund the down payment for a new one.
• Affording a double move and interim housing is financially challenging, or you need to synchronize the sale and purchase timelines.
• Your ideal home has just come on the market, and you wish to act swiftly, avoiding competitive delays.
• Your offers with a home sale contingency have consistently been unsuccessful, and you’re seeking more immediate purchasing power.
• You’re aiming to sell a vacated or staged home, which can be more appealing to buyers and potentially more profitable. This is particularly relevant if you’re unable to adequately prepare or stage your home for sale while still living in it, as an unoccupied and well-staged home often sells faster and at a better price.