Equity-rich? Consider a bridge loan.

Bridge loans are short-term financing options that “bridge” the gap between buying a new home and selling your current one. Typically lasting 6-12 months, these loans allow homeowners to use their existing home equity to fund a down payment on a new property. Although bridge loans carry higher interest rates than traditional mortgages (often 1-2% higher) and may include origination fees, they provide valuable flexibility in competitive markets.

The Los Altos advantage

Los Altos presents a unique real estate environment where homes consistently attract more buyers than sellers, resulting in quick sales and competitive bidding. With properties sometimes selling within 1-2 weeks, buyer offers with home sale contingencies rarely succeed. This makes bridge loans particularly valuable for both buyers and sellers in our community.

Many long-time Los Altos residents find themselves considering downsizing after decades in their homes. Their motivations include:

• Simplifying and lowering living costs

• Moving to more manageable spaces

• Relocating closer to family

• Finding homes with fewer stairs or less maintenance.

For retirees especially, sorting through decades of belongings takes time that our fast-paced market doesn’t always allow. Bridge loans solve this problem by enabling homeowners to:

• Purchase their new home before selling their current one

• Prepare their existing home for sale at their own pace

• Avoid the stress and expense of temporary housing

A key advantage for retired homeowners is that many bridge loan programs don’t require employment income – lenders primarily consider the equity in the current home. This makes bridge loans accessible to retirees with substantial home equity but limited ongoing income.

Additionally, many homeowners with significant stock portfolios choose bridge loans to avoid triggering capital gains taxes. Rather than liquidating investments for the 5-6 weeks needed between purchase and sale, a bridge loan preserves their investment position while providing necessary funds.

Buyers’ competitive edge

For buyers in Los Altos, bridge loans provide crucial advantages:

• Ability to make non-contingent offers

• Liquidity to act quickly when the right property appears

• Competitive standing against all-cash offers

While carrying two mortgages temporarily may seem risky, securing the right home often outweighs this short-term consideration in our competitive market.

Bridge loan availability has changed significantly. I previously worked closely with First Republic Bank, a local private bank where many clients secured bridge financing until its collapse following the Silicon Valley Bank failure in 2023. While this created a market gap, I still connect clients with alternative lenders offering bridge loans, though terms and qualifications vary.

For homeowners with substantial home equity, there are reliable lenders who understand this unique Bay Area market and offer bridge loans, some even some without employment verification – a crucial distinction when evaluating options.

Considering a bridge loan

Given these current market conditions, bridge loans make the most sense when:

• You find your ideal next home before selling your current one

• You’re in a market where contingent offers rarely succeed

• You’re relocating on a timeline that doesn’t align with selling

• You want to avoid moving twice

• You have significant equity in your current home

Exploring alternatives

Bridge loans are distinctive for homeowners with high equity but limited income, as they leverage substantial home equity without requiring current employment. However, before committing to one, consider these alternatives:

• Home equity line of credit: This may offer lower interest rates than bridge loans, but typically requires employment income for qualification.

• Securities-backed line of credit: Homeowners with substantial stock portfolios may qualify to borrow against those securities at rates potentially lower than bridge loans.

These are typically offered by wealth management firms and private banks. This option preserves investment positions while avoiding capital gains tax, though market volatility could impact loan terms.

• Retirement accounts or personal savings: Using liquid assets eliminates loan costs but may have tax consequences or deplete important reserves.

• Sale-leaseback arrangements: Selling with an agreement to lease back temporarily might provide needed funds while giving you time to find your next home.

Making your decision

Consider these steps before deciding:

• Consult with a lender about current terms, qualification requirements, and all associated fees

• Work with an experienced real estate professional who understands local market dynamics

• Create a contingency plan in case your home takes longer to sell than anticipated

• Calculate the total cost compared to alternatives

• Assess how long you can comfortably manage two housing payments if necessary

With proper planning, a bridge loan can transform a potentially stressful transition into a smooth, successful move – giving you control over your timeline rather than being at the mercy of market conditions.

Alex Wang is a longtime Los Altos resident, Realtor, and founder of Rainmaker Real Estate.
For more information text/call (650) 800-8840 or visit AlexWang.com.