Bridge Loans: Buying Before Selling
Quick Answer
How to navigate buying a new home in the competitive Des Moines market without making a "contingent" offer, leveraging the existing equity in your current house.
The Death of the Contingent Offer
Historically, a homeowner would find their dream house and write an offer that stated: "I will buy this house for $400,000, contingent upon the successful sale of my current home within 45 days."
In a competitive Central Iowa market, a contingent offer is a dead offer. If a seller receives two identical $400,000 offers—one that is ready to close in 30 days, and one that requires the buyer to successfully market and sell their own home first—the seller will reject the contingent offer every single time.
The Bridge Loan Solution
If you have substantial equity in your current home (e.g., your home is worth $350k and you only owe $100k), you can utilize a Bridge Loan to strip that equity out in cash *before* listing the house.
How It Works: 3 Steps
- The Cash Out: A local lender gives you a short-term, 6-month Bridge Loan for $150,000, secured against the equity of your current home.
- The Non-Contingent Purchase: You use that $150,000 cash as the 20% down payment on your new dream home. Because you already have the cash, your offer is highly competitive (non-contingent).
- The Sale & Payoff: You move into your new home, clean and stage your old home while it is empty (which makes it sell faster), and sell it. At closing, the profits automatically pay off the original mortgage AND the 6-month Bridge Loan.
The HELOC Alternative
Bridge loans frequently carry high origination fees (often 2% of the loan amount). A cheaper, but slower, alternative is opening a Home Equity Line of Credit (HELOC).
A HELOC achieves the exact same goal—pulling cash out of your current equity for a down payment—but usually has zero closing costs. The catch? It takes 30 to 45 days to underwrite a HELOC. You must open the HELOC months before you actually start house hunting. You cannot find your dream house on a Saturday and apply for a HELOC on Monday.
The DTI Warning
To execute a Bridge Loan, you must have enough income to qualify for carrying both the old mortgage and the new mortgage simultaneously. Your Debt-to-Income (DTI) ratio must typically remain under 43%, even when factoring in both houses. If your income does not support carrying two mortgages, a lender will deny the bridge loan.