The Bridge Loan Process in California: a Step-By-Step Explanation

In a previous article, we explained some of the benefits of using a bridge loan to buy a home in California before selling your current house. Today, we will break the process down into the individual steps. This will help you determine if it’s the right strategy for you.

Here are the basic steps involved when “bridging the gap” between buying a new house and selling the current one.

How the Bridge Loan Process Works in California

The first thing you should know is that this process can vary from one homeowner to the next. That’s because there are many variables involved. You’re essentially managing two different real estate transactions almost at the same time, buying a new home while trying to sell your current one.

Despite these differences, the bridge loan process in California typically follows the same sequence of events. Here are the basic steps…

Step 1: Get pre-approved for a loan

Getting pre-approved for a bridge loan is similar to getting pre-approved for a traditional mortgage. You will need to provide documentation such as your income, credit score, and information about the properties involved in the sale. Your lender will use this information to determine how much you can borrow and what your interest rate will be.

While the terms can vary, the maximum amount for a bridge loan is usually 80% of the combined value of your current home and the one you want to buy. Getting pre-approved by a lender can help you identify the specific amount you’re able to borrow.

Step 2: Make an offer on a new property

When making an offer on a new home, you might want to include a contingency that states the sale is dependent on you selling your current home. This gives you some protection in case your current home does not sell within the timeframe specified in the contract. These types of real estate contingencies are not required, but it’s something worth considering.

Step 3: Close on the new home

Once your offer is accepted and financing is in place, you can close on the new home. The funds from the bridge loan can be used to cover the down payment and closing costs for the new property.

Step 4: Sell the old home and repay the bridge loan

With your new house purchased and the bridge loan in place, you can start the process of selling your current home. Try to price your home competitively, based on recent sales in the area, and work with a real estate agent who has experience selling.

Keep in mind that the timeline for selling your home can be unpredictable, so it’s important to have a backup plan in case the sale takes longer than expected. Once your house sells, the proceeds from the sale can be used to repay the bridge loan in full.

At this point, you have successfully bridged the gap between buying a new home and selling your current one!

Common Mistakes to Avoid

While a bridge loan can be a useful tool for buying a new home before selling your current one, there are some mistakes to avoid along the way. Here are some potential issues to watch out for:

1. Failing to plan for the worst-case scenario

One of the biggest risks of using a bridge loan is that your current home may not sell as quickly as you anticipated. If this happens, you may be stuck with two mortgage payments and a higher debt load than you can handle.

To avoid this mistake, it’s important to plan for the worst-case scenario and have a backup plan in place. This might include renting out your current home temporarily or securing additional financing to cover the bridge loan.

2. Not knowing or overestimating your property value

When applying for a bridge loan, your lender will typically use your current home’s value as collateral. If you overestimate your home’s value, you may not be approved for the full loan amount you need.

To avoid this, you might want to consider having your current property appraised to determine the market value. Your lender will also order an appraisal, but you could do one on your own to find out where you stand. This is another optional step that’s at least worth considering.

3. Not having a clear plan for selling your current home

Selling your current home is a critical step in repaying your bridge loan. If you don’t have a clear plan for doing this, you might experience delays that could affect your ability to repay the bridge loan.

To avoid this, you can work with an experienced listing agent and set a realistic timeline for selling your current home. It also helps to price the property competitively based on recent, comparable sales in the area. This will help expedite the sale.

Have questions about the bridge loan process in California? Want to explore your financing options? We’re here to help! Please contact our knowledgeable staff with any questions you have, or to apply for a loan.