6 Alternatives to Bridge Financing a House

Reviewed by: Brandon Brown

Bridge loans, or bridging loans, serve as a solution for homeowners that are selling and buying a house at the same time.¹ They can allow buyers to bid on a new home without relying on a contingency that their old home sells, which can be a valuable option when you’re in a seller’s market. 

If you’re relying on the profit from your current home sale to afford a down payment and closing costs, bridge loans can also help to free up the necessary funds. However, you may need to pay for the convenience of a bridge loan, since they can come with fairly high interest rates.

Fortunately, there are other methods available for those who need help financing their next home or real estate purchase. To help you afford the house of your dreams and save on costs at the same time, we’ll explore six options for alternatives to bridge financing.

#1: Borrow Using a Home Equity Loan

Home equity loans are one of the most popular alternatives to bridge loans. With this type of loan, you borrow against the equity in the existing home you’re selling to fund your new home’s down payment and closing costs.² 

Home equity loans come with a fixed interest rate that’s usually slightly higher than the current mortgage interest rates. These interest rates can vary, but often depend on the borrower’s credit rating, debt-to-income ratio, and payment history.³

#2: Take Out a Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit, or HELOC, is another way to borrow against your old home’s equity before the sale in order to fund a new down payment.⁴ However, HELOCs come with variable interest rates and revolving credit available during a draw period. 

HELOCs typically have slightly higher rates than lump-sum home equity loans. As of mid-July 2022, the average daily rates were 5.49% for a 10-year term and 7.43% for a 20-year term.⁵

 

#3: Apply for a Hybrid Mortgage

A hybrid mortgage allows a homebuyer to take out a second mortgage to cover the down payment at the same time they’re financing their new home purchase.⁶ Options include: 

• 80-20 mortgages, which cover a 20% down payment on the new house. 

• 80-10-10 mortgages that provide a 10% down payment in addition to 10% cash directly from the borrower. This results in 20% equity, thus avoiding private mortgage insurance (PMI).

The lender calculates interest rates differently for each section. The 80% is an adjustable-rate mortgage (ARM). Meanwhile, the 20% (or 10% + 10%) is a fixed-rate home equity loan on the new house.

#4: Borrow Against Other Assets

Another long term financing option for those seeking swing loan or bridge loan alternatives is a loan against other financial assets. These can include: 

• 401k plans – This type of retirement plan usually permits borrowing against the smaller of half of your vested balance, or $50,000 without penalties.⁷ You’ll pay interest on the loan, but it will be paid into your account. The maximum loan term is five years. If you borrow from your 401k, keep in mind that your employer may suspend their contributions until you’ve repaid your loan, and not all 401k plans permit borrowing.

• Stock holdings – You can either sell or borrow against a portion of your stock holdings. This can be a complex situation depending on the investments you have, so be sure to consult your financial advisor to discuss different options and limitations. 

#5: Take Advantage of Government Down Payment Assistance Programs

If you qualify, you may be able to receive either a grant or a no-interest loan worth up to 5% of your mortgage total. This financial aid is available through the Down Payment Assistance initiative from the National Homebuyers’ Fund.⁸

Additionally, several states provide homebuyer assistance in the form of no- or low-interest loans, grants, or deferred-payment loans. Typically, these loans are only due after you sell or pay off your new home.

#6: Sell Your Home to a House Flipping Company

If you sell your home for cash to a house flipping company, you may be able to gain the down payment you need to afford your new home up front—without even going through a realtor for the sale. 

For example, at FlipSplit, we buy houses that are both distressed and in reasonable condition. We make fair value offers for as-is cash sales and share extra profits with you when we resell your exisiting property. 

Two ways we can help sellers avoid bridge financing are: 

1. Buying your home with you still in residence – While we prefer to close on unoccupied homes, our goal is for both parties to get what they need. Your FlipSplit Advisor can work with you on an offer that includes a short-term lease after closing, so you can access your profits to fund a new home purchase and avoid moving multiple times. 

2. Giving you part of the sale price early – We’ll pay as much as $20,000 to you prior to the close of escrow to help with your cash flow needs, so long as all final inspections are completed. 

You’ll also receive these additional financial benefits with a sale to FlipSplit:

• No closing costs, commissions, or fees

• No repairs or staging costs 

• A 50/50 split of extra profits once your home is flipped 

Get a No-Obligation Offer On Your Home with FlipSplit

There are many viable alternatives to bridge financing when you’re hoping to buy a house. From home equity loans to hybrid mortgages, many of these options can provide you with more financial flexibility to help you purchase the home of your dreams.

But if you’re interested in selling a house to a cash buyer or house flipping company, look no further than FlipSplit.

Once you reach out to FlipSplit, one of our advisors will schedule a free home assessment either in person or with a video walkthrough of your house. Then, we’ll prepare an offer for you that includes our projected renovations and how much we predict we can re-sell it for. If you accept our offer, you can schedule closing anywhere between 3 and 90 days—whatever is convenient for you. 

Find the financing you need for the home you desire with FlipSplit.

 

Sources: 

1. Investopedia. Bridge Loan Definition. https://www.investopedia.com/terms/b/bridgeloan.asp 
2. Investopedia. Home Equity Loan Definition. https://www.investopedia.com/terms/h/homeequityloan.asp 
3. Forbes Advisor, Mortgage Interest Rates Today: July 19, 2022—Rates Drop. https://www.forbes.com/advisor/mortgages/mortgage-rates-07-19-22/
4. Investopedia. A Guide to Home Equity Loans and HELOCS. https://www.investopedia.com/mortgage/heloc/ 
5. Forbes Advisor. HELOC Rates For July 18, 2022: HELOC Rates Tumble. https://www.forbes.com/advisor/home-equity/heloc-rates-july-18-2022/
6. The Balance. Hybrid Loans: What They Are and How They Work. https://www.thebalance.com/how-hybrid-loans-work-and-benefits-4157799 
7. The Balance. Borrowing From Your 401(k) to Buy a House. https://www.thebalance.com/borrowing-from-your-401k-to-buy-a-house-4156684
8. National Homebuyers’ Fund. NHF Down Payment Assistance. http://www.nhfloan.org/programs.html
9. NextAdvisor. Mortgage Interest Rates Today, July 19, 2022 | Rates Stay Below 5.75% as Fed Eyes Rate Hike. https://time.com/nextadvisor/mortgages/daily-rates/mortgage-rates-today-july-19-2022/