Bridge loans: buying a home before you sell the old one

How a bridge loan works

A residential bridge loan is secured by your current home and funds a new purchase before the old home sells. When the sale closes, its proceeds repay the bridge, usually in one lump sum. Until then, you pay for both homes.

• Security: a lien on your current home, often behind its mortgage
• Term: usually 6–12 months, matched to your expected sale
• Payments: often interest-only, with principal due at sale
• Fee: typically 1–3% of the loan, charged at closing

Lenders structure bridges in two common ways. Some add the bridge as a second mortgage behind your current loan; others pay that loan off and replace it with one larger short-term loan. Ask which you are being offered, since it changes both your payments and your payoff.

How much you can borrow

The limit comes from equity in the home you're selling. A lender applies a combined loan-to-value cap, commonly 80–85% for equity loans and sometimes lower for bridges, then subtracts what you still owe.

Even at an 80% cap, that home supports $70,000: enough for a down payment, not a whole purchase price. A stricter cap or a lower appraisal shrinks the figure quickly.

The sequence from application to payoff

1. Apply and get the current home appraised to set the limit
2. Close the bridge and use the funds as your down payment
3. Buy the new home and carry both payments while you sell
4. Close the sale; proceeds repay the bridge, and you keep the rest

What a bridge loan costs for each month of delay

Suppose you borrow $100,000 against your current home until it sells. Prime is 7.00%, so an illustrative bridge loan at prime + 2 charges 9.00% plus a $2,000 fee, while a HELOC at prime + 1 charges 8.00%. Neither rate is an official average; none exists for bridge loans.

Each month of delay costs $750 in interest, so six months comes to $6,500 with the fee and twelve months to $11,000. Because the fee is paid up front, even a three-month bridge costs $4,250.

A HELOC on the same $100,000 costs $667 a month with no closing costs assumed, so six months comes to $4,002 — $2,498 less than the bridge. That gap buys flexibility: a bridge may still be available after you list, when many HELOC lenders decline.

Fees owed even if the sale is quick

The example's fee is charged at closing, even if the sale comes quickly. Look for these four items in the lender's fee schedule:

• Origination fee: 1–3% of the loan, charged even on a quick payoff
• Closing costs: appraisal, title and recording charges on the bridge
• Extension fees: added charges and interest if the sale runs late
• Repriced mortgage: a rolled-in bridge replaces your current loan's rate

When a bridge loan goes wrong

A bridge loan fails on timing, not on the rate, because every risk traces back to a sale that takes longer than planned. These are the four ways the plan breaks:

• Two housing payments: you carry both homes until the old one sells
• Payoff comes due: the lump sum is owed even if the home hasn't sold
• No required affordability check: the lender needn't verify you can carry both
• Fee regardless of speed: the 1–3% fee stays even on a quick sale

The CFPB's Regulation Z, § 1026.43(a)(3)(ii), exempts temporary or bridge loans with terms of 12 months or less from its ability-to-repay requirements. That means a lender isn't required by that rule to verify you can afford both homes, so the stress test is yours to run.

Bridge loan vs. HELOC vs. sale-contingent offer

All three handle the same timing problem, but they differ in cost, in how strong your offer looks to a seller, and in what happens if the old home lingers.

The HELOC guide and home equity loan guide cover the cheaper routes in detail, and the HELOC calculator prices a line on your own numbers. A bridge earns its premium only when those aren't available in time.

Who a bridge loan fits

A bridge loan fits owners with substantial equity and steady income who must close on a new home before the old one sells, usually to win a competitive bid.

• Substantial equity in the home you're selling
• Income that can carry both housing payments for months
• A home priced and positioned to sell within the term
• A market where sale-contingent offers lose to cleaner ones

Skip it if your home is hard to price, your market is slow, or two payments would strain your budget. A HELOC or home equity loan opened before you list usually costs less, and a sale-contingent offer adds no financing cost.

Bridge loans: pros and cons

What bridge lenders look for

Lenders start with equity. They typically want 20% or more in the home you're selling, alongside a combined loan-to-value cap commonly set at 80–85%. A credit score in the 620–680 range is a common floor for equity-based lending, and bridge lenders may ask for more.

Expect to document income that covers both housing payments and a realistic plan to sell. Your new-home mortgage lender will usually count the bridge and your old mortgage in your debt-to-income ratio, so confirm how it treats the old home before you bid.

Requirements at a glance

• Equity in your current home, often 20% or more
• Combined loan-to-value within the lender's cap, commonly 80–85%
• Credit score in the 620–680 range or higher, depending on the lender
• Income that can carry both housing payments for the full term
• A realistic plan and timeline for selling the current home
• Cash for the 1–3% fee and both homes' carrying costs