Bridge Loans Explained: How to Buy Before You Sell and What It Costs
A bridge loan provides short-term financing so you can buy a new home before selling your current one. It uses the equity in your existing home as collateral, typically lasts 6-12 months, and carries rates of 8-12% with origination fees of 1-3%. Bridge loans solve a timing problem — but they are expensive, and alternatives like HELOCs, contingent offers, and home equity loans may cost less depending on your situation.
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How It Works
- Purpose: Short-term loan using your current home’s equity to fund the down payment and closing costs on a new home before the old home sells
- Term: Typically 6-12 months — the bridge loan is repaid when the existing home sells and the sale proceeds close the bridge balance
- Collateral: Your current home serves as collateral — the bridge lender places a lien (first or second) on the departing property
- Action: Only use a bridge loan when you cannot time the sale and purchase to overlap — explore alternatives first
Cost Structure
- Rates: 8-12% interest, significantly above first mortgage rates because bridge loans are short-term and higher risk for the lender
- Origination: 1-3% of the bridge loan amount in origination fees — on a $150,000 bridge, that is $1,500-$4,500 upfront
- Payments: Interest-only monthly payments during the bridge term, with full principal due at maturity when the old home sells
- Action: Calculate the total cost: (rate × principal × months ÷ 12) + origination fee — a $150,000 bridge at 10% for 6 months costs roughly $11,250 in total
Qualification
- Equity: You need significant equity in your current home — most bridge lenders require at least 20% equity after the bridge loan
- DTI: Lenders may count both your existing mortgage AND the new mortgage in DTI, which requires strong income to carry two payments
- Credit: 680+ FICO typical — bridge loans are portfolio products with lender-set requirements
- Action: Ask the bridge lender whether they calculate DTI with one mortgage or two — this determines whether you can qualify
Alternatives
- HELOC: If you have equity and 2-6 weeks before you need funds, a HELOC at 8-10% is cheaper than a bridge loan at 10-12% plus origination fees
- Contingent offer: Make your new purchase contingent on selling the old home — no bridge needed, but sellers in competitive markets may reject contingent offers
- Home sale leaseback: Sell your current home first, negotiate a leaseback period of 30-60 days to stay while you close on the new home
- Action: Exhaust cheaper alternatives before committing to a bridge loan — the convenience comes at a premium
Frequently Asked Questions
What happens if my old home does not sell before the bridge loan matures?
Can I get a bridge loan from the same lender as my new mortgage?
How much can I borrow with a bridge loan?
The Bottom Line Up Front
Bridge loans solve a real timing problem but at a steep cost. Rates of 8-12% plus 1-3% origination mean a 6-month bridge on $150,000 costs roughly $10,000-$12,000 in total. Explore HELOCs, contingent offers, and leaseback arrangements before committing to bridge financing.
The scenario is common: you found the perfect new home but your current home has not sold. You need the equity from the sale for the down payment on the new purchase. A bridge loan provides that equity on a short-term basis, secured by your departing residence. The loan is repaid when the old home sells. It works — but the cost is significant, and most buyers have cheaper alternatives available if they plan ahead.
How Does a Bridge Loan Work?
A bridge loan is a short-term loan secured by your current home that provides funds for the down payment and closing cost breakdown on a new purchase. It “bridges” the gap between buying and selling.
- The bridge lender evaluates your equity in the departing residence, your creditworthiness, and your ability to carry two mortgage payments simultaneously (the existing mortgage plus the new mortgage)
- The bridge loan funds at or before the closing on your new home purchase — the proceeds go toward the down payment and closing costs on the new property
- Monthly payments during the bridge term are interest-only — you pay interest on the bridge balance each month but do not reduce principal until the old home sells
- When the old home sells, the bridge loan is repaid from the sale proceeds. The title company pays off the bridge lien at closing, and any remaining equity goes to you
Approval Watchpoint
The biggest qualification challenge with bridge loans is DTI. During the bridge period, you carry three housing obligations: the mortgage on your old home, the mortgage on your new home, and the interest payments on the bridge loan. Most bridge lenders require that you can qualify for all three payments simultaneously. If your income cannot support the combined load, the bridge loan will be denied regardless of your equity position.
What Does a Bridge Loan Actually Cost?
Bridge loans are expensive relative to traditional mortgages. Rates run 8-12%, origination fees are 1-3%, and the short term means the per-dollar cost is high.
| Bridge Amount | Rate | Term | Monthly Interest | Origination (2%) | Total Cost |
|---|---|---|---|---|---|
| $75,000 | 10% | 6 months | $625/mo | $1,500 | $5,250 |
| $100,000 | 10% | 6 months | $833/mo | $2,000 | $7,000 |
| $150,000 | 10% | 6 months | $1,250/mo | $3,000 | $10,500 |
| $150,000 | 10% | 12 months | $1,250/mo | $3,000 | $18,000 |
Deal Math
A $150,000 bridge at 10% for 6 months costs $10,500 total ($7,500 interest + $3,000 origination). A HELOC on the same home at 9% with $0 closing costs for 6 months costs $6,750 (interest only). The HELOC saves $3,750 — the origination fee difference plus the rate difference. If you have 2-3 weeks before you need the funds, a HELOC is almost always cheaper than a bridge loan.
What Are the Alternatives to a Bridge Loan?
Several alternatives can solve the buy-before-sell timing problem at lower cost. Explore all of them before defaulting to a bridge loan.
- HELOC: If you have equity and 2-6 weeks to wait, opening a HELOC on your current home costs $0-$2,000 in closing costs and provides revolving access at 8-10% — significantly cheaper than a bridge loan’s origination fees
- Home equity loan: A fixed-rate lump sum at 7-10% with no origination fee at many lenders — use the proceeds for the down payment and repay when the old home sells
- Contingent offer: Make your purchase offer contingent on the sale of your current home — the seller may accept in a buyer’s market, eliminating the need for bridge financing entirely
- Sale-leaseback: Sell your current home and negotiate a 30-60 day rent-back period in the purchase agreement — this lets you close on the sale, receive proceeds, and use them for the new purchase while still living in the old home temporarily
- 80-10-10 piggyback: Put 10% down on the new home with a first mortgage for 80% and a HELOC or second mortgage for 10% — repay the second lien when the old home sells
Lender Reality Check
Bridge loans are niche products offered by portfolio lenders, some banks, and specialty bridge lending companies. Most conventional mortgage lenders do not offer bridge financing. If your mortgage lender does not offer a bridge, they may be able to structure the new purchase using your existing home’s equity through creative underwriting — such as counting the departing residence as “pending sale” with a signed contract, which eliminates the need for a bridge in some cases.
The Bottom Line
Bridge loans work but cost $5,000-$18,000 for 6-12 months of financing. A HELOC or home equity loan on the departing home is almost always cheaper. Contingent offers and sale-leasebacks solve the timing problem without any short-term financing cost. Use a bridge loan only when no alternative is available and the deal justifies the expense.
If you decide to proceed with a bridge loan, get quotes from at least two bridge lenders. Compare rates, origination fees, and prepayment terms. Confirm the maximum term and extension options in case your old home takes longer to sell than expected. And budget for the full cost — interest plus origination — in your total transaction budget for both the sale and the purchase.
Frequently Asked Questions
Can I get a bridge loan with bad credit?
Limited options exist below 680 FICO. Bridge loans are portfolio products, and most bridge lenders set minimum credit requirements of 680-700. Some private lenders or hard money lenders offer bridge financing at lower credit tiers but with higher rates (12-15%) and larger origination fees (3-5%). The cost may be prohibitive.
Do I need my old home listed for sale to get a bridge loan?
Most bridge lenders prefer or require that the departing home be listed for sale before funding the bridge. Some lenders require a signed listing agreement. A few will fund the bridge based on equity alone without a listing, but this is less common and may carry a rate premium.
Is a bridge loan tax deductible?
Bridge loan interest may be deductible if the loan is secured by a qualifying residence and the funds are used for home-related purposes. However, the tax treatment depends on how the bridge is structured (first lien vs. second lien) and the specific use of funds. Consult a tax advisor for your situation.
How long does it take to get a bridge loan?
Bridge loans typically close in 2-4 weeks from application. Some specialty bridge lenders can close in 7-10 days for well-documented files. This is faster than a HELOC (which may take 3-6 weeks) but comparable to a home equity loan from an online lender.
Can I use a bridge loan for a new construction home?
Yes, bridge loans can be used for new construction down payments. However, the bridge term must be long enough to cover the construction timeline — if construction takes 12 months and the bridge matures at 6 months, you will need an extension. Some construction lenders offer integrated bridge-to-permanent financing that handles this automatically.
What happens if my old home sells for less than expected?
You are still responsible for the full bridge loan balance regardless of what your home sells for. If the sale proceeds do not cover the bridge payoff plus your existing mortgage, you need to bring cash to closing. This is the primary risk of bridge financing — you are betting that your home sells for enough to cover all obligations.