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Buying and Selling a Home in California: Can a Bridge Loan Help?

Buying and selling a home in California at the same time can be complicated. There’s a lot to consider along the way, especially when it comes to your financing strategy. Thankfully, there are some mortgage loan products that can help you simplify the process and accomplish your goals.

In this article, we’ll talk about the two common strategies for buying and selling a home in California. We’ll also look at the bridge loan, which is a popular financing method for people who are buying one house and selling another.

Strategies for Buying and Selling at the Same Time

Buying a house in California can be a complex process that requires all of your attention and focus. When you add the sale of your current home into the mix, things become even more complex. But with some careful research, forethought and planning, you can find the best path forward.

From a timing standpoint, there are basically two ways to buy and sell a house in California:

1. Sell your current home first, and then buy the next.

The first approach is to sell the home that you’re currently in, and use the proceeds from that sale to purchase your next house in California.

The upside to this strategy is that you have money to put toward your down payment, once you find the next home you wish to purchase. The downside is that you’ll have to live somewhere else during the interim. This might mean moving into a short-term rental property, and then moving again once you buy your next house.

2. Buy your next home first, and then sell the current one.

Another strategy is to buy the next house first, before selling the home you’re currently in. Here again, there are pros and cons associated with this strategy. The benefit is that you only have to move once, from your current home into the one you’re buying next.

The downside is you won’t have the proceeds from your sale to put toward the down payment on the next home. Additionally, you might have to make your offer contingent upon the sale of your existing house, which might make your offer less attractive to sellers.

There are several financing options available for those who take the second path mentioned above – buying the next home before selling the current one.

For instance, a homeowner in California might use a home equity loan, a HELOC, or a bridge loan to obtain funding for their next purchase. These products allow you to convert some of your equity into cash, which can be applied toward the down payment on the next house.

We’ve covered some of these loan options in previous blog posts. Today, we’ll take a closer look at the bridge loan strategy for buying and selling a house in California.

How a Bridge Loan Works in California

As the name implies, a bridge loan allows you to bridge the financing gap between the purchase of your next home and the sale of your current property. It provides funding based on the amount of equity you have in your house right now. You can then use this money to purchase the next home, and pay off the loan after you sell the current one.

In short: A California bridge loan is basically a short-term financing strategy that allows you to convert equity into cash, to facilitate the purchase of another home.

Like most financing strategies, bridge loans have certain pros and cause associated with them. One potential downside is that you might take on a higher interest rate, when compared to other equity-based financing options like the HELOC.

Advantages of Using a Bridge Loan to Buy a Home

For many homeowners, the advantages of using a bridge loan to buy the next house far outweigh the higher costs. So let’s talk about the benefits of this strategy:

1. You’ll only have to move once.

Instead of selling your current house and moving into a rental property, a bridge loan allows you to stay in your current home until you’ve purchased the next one. So you only have one move to make, as opposed to two. This is a major advantage, when you consider what a hassle moving can be.

2. You can make a stronger offer.

A California bridge loan can also help you make a stronger offer. Without this extra financing, you might have to make your offer contingent upon the sale of your current home. And this kind of strategy could work against you, especially in a competitive real estate market.

When sellers receive multiple offers, they tend to choose one with the fewest contingencies. After all, a home sale contingency can make a real estate transaction more unpredictable. So a seller might shy away from them. With a bridge loan, you can make a non-contingent offer with fewer “strings attached.”

3. You can start house hunting sooner.

If you choose to sell your current house before buying the next one, you might not be able to start house hunting until the property sells. This could delay your next purchase by weeks or even months. As a result, you might end up paying more for the next house due to rising home prices and/or mortgage rates.

A bridge loan gives you more flexibility and allows you to start house hunting just as soon as you obtain funding. That way, you could get ahead of rising prices and expedite your purchase. Once your previous home sells, you could then pay off the bridge loan with the proceeds.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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