Trying to buy your next Morgan Hill home before selling your current one? You are not alone. Many South County homeowners need a stronger, non‑contingent offer to win the right property, but worry about cash flow and timing. In this guide, you will learn how bridge loans and HELOCs work, what they cost, how fast they fund, and when each option fits your move‑up plan. Let’s dive in.
Bridge vs HELOC: quick overview
Bridge loan: A short‑term loan that uses your current home’s equity to fund the down payment on your next home. Payments are commonly interest‑only for 6 to 12 months. You buy first, then sell your current home and pay off the bridge.
HELOC: A revolving line of credit secured by your current home. You draw only what you need during a draw period. Rates are usually variable. You can use a HELOC for a down payment, earnest money, or prep work before listing.
Costs and fees
- Bridge loan
- Origination fee often 1 to 3 percent of the loan amount.
- Interest rate higher than a standard first mortgage, usually interest‑only.
- Closing costs can include appraisal, title, and escrow. Some lenders allow early payoff with no penalty, but always confirm terms.
- HELOC
- Often lower upfront costs. Some lenders waive closing costs.
- Appraisal and recording fees may apply. Some lenders charge annual or inactivity fees.
- Variable interest rate by default. Some offer options to fix portions of the balance.
Rates and payments
- Bridge loans can be fixed or short‑term variable and are typically higher than standard mortgage rates. Payments are usually interest‑only during the term.
- HELOCs are typically tied to the prime rate plus a margin. Payments are often interest‑only during the draw period, then rise when amortization begins or rates change.
LTV and approvals
- Bridge loan underwriting looks at your equity, the marketability of your current home, your credit, and your debt‑to‑income ratio. Combined loan‑to‑value limits often fall around 80 to 90 percent, depending on the lender.
- HELOC approvals depend on credit, income documentation, and your combined loan‑to‑value, which commonly tops out near 80 to 90 percent for well‑qualified borrowers.
Funding timelines
- HELOCs commonly fund in 2 to 6 weeks, depending on appraisal timing and lender volume.
- Bridge loans often fund in 2 to 4 weeks, sometimes faster with specialty lenders. Expect full underwriting and title review, plus a clear plan to list and sell your current home.
Local risks to plan for
- Carrying two properties can strain cash flow. You could face payments on your new mortgage plus your current mortgage and bridge or HELOC interest.
- If your current home takes longer to sell, you may need to extend the bridge, refinance, rent the property, or accept a lower sale price. Each path has financial and tax implications.
- Competitive offers in Morgan Hill often benefit from fewer contingencies and faster closes. Bridge or HELOC financing can help you write stronger offers, but it increases financial risk if the sale lags.
Which option fits your move‑up?
Use a bridge loan when
- You need a non‑contingent offer to compete for a Morgan Hill property.
- You have substantial equity and expect to sell quickly based on local comps and pricing strategy.
- You want a single short‑term solution designed for buy‑then‑sell timing and accept a higher short‑term cost.
Use a HELOC when
- You need a smaller amount for a down payment, earnest money, or prep work.
- You prefer lower upfront costs and flexible draws and can tolerate variable rates.
- You plan to sell soon and want a lower‑cost interim option, especially if market pressure to remove contingencies is moderate.
Hybrid alternatives
- Combine a HELOC for part of the down payment with a purchase contract that includes a sale contingency if conditions allow.
- Pair a smaller bridge with a HELOC to reduce fees and keep flexibility.
- Sell first and negotiate a rent‑back to give yourself time to buy.
Example math: 6 months
Assumptions (illustrative):
- Current home value: $900,000; current mortgage: $300,000; equity: $600,000
- New home price: $1,500,000; 20 percent down: $300,000
- Available cash: $50,000
Bridge scenario
- Bridge amount: $300,000
- Rate: 8 percent annual, interest‑only
- Term: 6 months
- Origination: 2 percent = $6,000
- Interest for 6 months: $300,000 × 0.08 × 0.5 = $12,000
- Total short‑term cost: $12,000 + $6,000 = $18,000
- Monthly interest payment: about $2,000
HELOC scenario
- Draw used: $250,000 (plus $50,000 cash)
- Rate: 7 percent variable, interest‑only
- Interest for 6 months: $250,000 × 0.07 × 0.5 = $8,750
- Fees: assume $1,000
- Total short‑term cost: about $9,750
- Monthly interest payment: about $1,458
New mortgage example
- After a $300,000 down payment, a $1.2 million loan at 6 percent for 30 years is roughly $7,200 per month for principal and interest. Add bridge or HELOC interest and your current mortgage to stress‑test cash flow.
Stress‑test your plan
- Add up monthly payments for the new mortgage, your existing mortgage, and bridge or HELOC interest.
- Model sale timing at 30, 60, 90, and 180 days to see the added carrying cost.
- Confirm that expected sale proceeds will cover the bridge payoff and all closing costs.
- Build a backup plan: extension funds, a rental plan, or a refinance path if the sale takes longer.
Taxes and disclosures to note
- HELOC interest is generally deductible only if funds are used to buy, build, or substantially improve the home securing the loan and within IRS limits. Tax rules change, so consult a CPA for personal guidance.
- Both products come with federal disclosures. Review variable‑rate language and any payment change risks before you sign.
Lender‑ready checklist
- Financial documents
- Two recent pay stubs, last two years of W‑2s or 1099s, and tax returns if self‑employed.
- Recent bank and asset statements, current mortgage statements, property tax details, and HOA dues.
- Property and pricing
- Recent comparable sales, a suggested list price, and days‑on‑market expectations.
- Any recent appraisal or a broker price opinion and HOA documents if applicable.
- Sale plan
- Target list date, pricing range, and contingency plans if the sale takes longer than expected.
- New mortgage pre‑approval
- A full pre‑approval letter with loan amount and rate options so bridge or HELOC lenders can assess combined debt.
- Quotes and comparisons
- Written term sheets from two to three lenders for both bridge loans and HELOCs, including fees and rate structures.
- Title and escrow
- Coordinate timelines for purchase and sale to enable smooth back‑to‑back or same‑day closings if needed.
- Tax and legal
- Speak with a CPA about deductibility and a real estate attorney if you plan complex occupancy or contingency terms.
- Contingency planning
- Document funding for potential extensions, rental scenarios, or refinance options.
Work with a local expert
A successful buy‑then‑sell move in Morgan Hill depends on timing, pricing, and clean execution. You want a clear sale strategy, accurate local comps, and a financing plan that supports a strong offer without stretching risk beyond your comfort zone. If you want help mapping out numbers, timing, and the right product fit, connect with Rajiv Kohli to build a step‑by‑step plan.
FAQs
What is the main difference between a bridge loan and a HELOC?
- A bridge loan is a short‑term loan designed to fund your next purchase before you sell, while a HELOC is a revolving credit line you draw from as needed using your current home as collateral.
How fast can a HELOC or bridge loan fund for a Morgan Hill purchase?
- HELOCs commonly fund in 2 to 6 weeks and bridge loans in about 2 to 4 weeks, depending on appraisal scheduling, documentation, and lender capacity.
Which option typically costs less for six months of use?
- In many cases a HELOC has lower upfront fees and can cost less over a short span, while bridge loans often carry higher fees and rates in exchange for speed and structure.
Can I make a non‑contingent offer using a HELOC instead of a bridge?
- Yes, if your HELOC provides enough funds for the down payment and closing costs, you can write a non‑contingent offer, but you still face variable‑rate risk and carrying two properties.
What risks should I plan for if my current home takes longer to sell?
- You may need to extend the bridge loan, refinance, rent the property, or adjust price to sell, and each path has cost and tax implications you should model in advance.
Is HELOC interest tax‑deductible if used for a down payment?
- HELOC interest is generally deductible only if the funds are used to buy, build, or substantially improve the home that secures the HELOC and within IRS limits, so consult a CPA for your situation.
