Bridge Loan
A bridge loan is short-term financing that lets you buy a new home before selling your current one. Learn how bridge loans work, what they cost, and when they make sense versus alternatives like contingency offers or HELOCs.
Definition
A bridge loan is short-term financing (typically 6–12 months) secured by your current home's equity, used to purchase a new home before the old one sells. It "bridges" the gap between the two transactions.
How a bridge loan transaction flows
- You have your current home with equity (e.g., $200,000) and need to close on a new home before you sell.
- A bridge lender advances you up to 80% of your current home's equity, minus any existing mortgage balance. This funds your down payment on the new home.
- You close on the new home using bridge funds. You now carry: the existing mortgage, the bridge loan, and the new mortgage.
- You list and sell your current home — typically within 6 months. Proceeds repay the bridge loan in full at that closing.
Bridge loan vs alternatives
| Option | Cost | Competitive? | Key risk |
|---|---|---|---|
| Bridge loan | High (10–12% + 1–3% fees) | Yes — no sale contingency | Carries two mortgages if sale delays |
| Sale contingency | None | Low — sellers often reject | May lose new home if not accepted |
| HELOC draw | Medium (prime + 1–2%) | Yes if HELOC is open | Requires existing HELOC approval |
| Sell then buy | Temporary rent | Yes — all-cash or minimal contingency | Two moves; may miss target home |
When a bridge loan makes sense
Consider a bridge loan when…
- You found the right home and sellers will not accept a contingency
- Your current home has high equity and is in a fast-selling market
- The bridge cost is less than losing the new home opportunity
- You have strong DTI headroom to carry both loans temporarily
Avoid a bridge loan when…
- Your current market is slow — sale timeline is uncertain
- A HELOC or contingency offer is available
- Carrying two mortgages + bridge would stretch your DTI
- Your bridge equity cushion is thin (less than 30% after fees)
Common questions
How does a bridge loan work in practice?
A bridge loan uses the equity in your current home as collateral to fund the down payment (and sometimes the purchase price) on your new home. You close on the new home, move, then sell the old home and repay the bridge loan. Most bridge loans are interest-only for 6–12 months, with a balloon payment due at maturity. Some lenders require you to have both homes under contract simultaneously; others allow the bridge before the old home is listed.
What does a bridge loan cost?
Bridge loans are expensive short-term capital. Expect: interest rates of prime + 2–3% (approximately 10–12% in 2026), origination fees of 1–3% of the loan amount, and appraisal/closing costs on both transactions. On a $200,000 bridge loan for 6 months at 11%, the interest cost alone is ~$11,000, plus $2,000–$6,000 in fees. The question is whether that cost is less than the alternative — such as a contingency offer that may not be accepted in a competitive market.
What is the alternative to a bridge loan?
Several alternatives exist depending on your situation: (1) Contingency offer — make the new purchase contingent on selling your current home. Sellers may not accept in competitive markets. (2) HELOC — draw equity from your current home to fund the down payment on the new one, if you have available equity and the HELOC is already open. (3) 80-10-10 with no bridge — make a smaller down payment on the new home and avoid the bridge entirely, then pay down the second mortgage after selling. (4) Sell first, rent temporarily — the cleanest financial path, though it adds moving complexity.
Can I qualify for two mortgages at once with a bridge loan?
Bridge lenders typically allow you to carry both the existing mortgage and the new mortgage because the bridge arrangement is temporary and the existing home is under contract or near-marketable. However, your debt-to-income ratio (DTI) must still qualify with both payments. Most conventional lenders will use 70–75% of the expected rental income from the departing home to offset its PITI if it is being rented, or exclude the departing mortgage from DTI if there is a signed sale contract with adequate equity.
How long can I have a bridge loan?
Most bridge loans have terms of 6–12 months, with some lenders offering up to 18–24 months for new construction. Longer bridge periods significantly increase cost. If your old home has not sold by maturity, the bridge lender may offer an extension (at a fee) or require a payoff. Having a realistic timeline for selling your current home is essential before taking a bridge loan — a slower-than-expected sale can leave you carrying three obligations: the bridge loan, the old mortgage, and the new mortgage.