Buying before you sell in McHenry County: how a bridge loan works at a bank that keeps it

What a bridge loan is

A bridge loan borrows against the equity in the home you're leaving to fund the down payment on the home you're buying. It is short-term, usually six to twelve months, and it's paid off when the old house closes. Structures vary: some bridge loans replace your existing mortgage entirely, others sit behind it as a second lien. Either way, the goal is the same: cash to close on the new house before the old one sells.

What it looks like on a real file

Say you own a house in Lake in the Hills worth $425,000 with a $180,000 mortgage, and you're buying in Crystal Lake for $520,000. A bridge loan of $120,000 against your current equity becomes the down payment. You close on the new house with a conventional mortgage for $400,000, move, list the old house empty and staged, and pay off the bridge when it sells. For a few months you carry three payments; that's the cost of not writing a contingent offer.

• Typical bridge amount: up to 80% of the current home's value, less the existing mortgage
• Term: 6 to 12 months, interest-only, no prepayment penalty
• Qualifying: we count the bridge payment in your ratios, or waive it with reserves and a listed home
• Speed: a bridge from a portfolio bank can close in the same timeline as the purchase, sometimes in under two weeks

Why most lenders say no

Bridge loans can't be sold to Fannie Mae or Freddie Mac, so a lender who sells every loan has no place to put one. A portfolio bank keeps it on the balance sheet, which means we can underwrite it with judgment: a house that's already listed with a strong agent, a borrower with reserves, and a realistic price get a yes. It also means when the old house sells, the payoff is a phone call to the same building.

The alternatives, honestly

A bridge loan isn't always the right tool. Three others we use regularly:

• A HELOC on the current home, opened before you list. Cheaper than a bridge if you have time, but many lenders freeze or decline a HELOC once the house is on the market.
• A recast: buy with a small down payment, then apply the sale proceeds to the new mortgage and have the payment recalculated. Works with our portfolio loans and most conventional loans for a small fee.
• A rent-back: negotiate to stay in the home you sold for 30 to 60 days after closing, which sometimes removes the need to bridge at all.

What to have ready

A current mortgage statement on the home you're leaving, a listing agreement or a Realtor's price opinion, your standard income and asset documents, and the contract or target price on the new home. With that, a loan officer can tell you in one conversation whether a bridge, a HELOC, or a recast fits, and what the carrying cost looks like for the months you'll have both.