A bridge loan is a short-term financing solution designed to "bridge" the gap between the purchase of a new property and the sale of an existing one. Typically lasting from six months to one year, these loans allow homeowners to use the equity in their current residence to fund a down payment or closing costs on a new home without waiting for their current listing to close. This product is particularly powerful in competitive real estate markets, as it allows buyers to submit non-contingent offers, making their bid much more attractive to sellers.
The primary benefit of a bridge loan is the ability to buy a new home before selling your current one. This eliminates the need for a "home sale contingency" in your offer and prevents the stress of moving twice or being forced into a short-term rental between homes.
Lenders typically allow you to borrow up to 80% of the combined value of both your current home and the new property. The loan stays in place until your original home sells, at which point the bridge loan is paid off in full using the sale proceeds.
Because bridge loans are specialized products, lenders look closely at the equity available in your current home. While credit score and debt-to-income (DTI) ratios still matter, the primary "collateral" is the net equity you will realize once your existing home is sold.
While a Home Equity Line of Credit (HELOC) can also be used for a down payment, a bridge loan is specifically designed for a short-term exit. Bridge loans often do not require monthly payments for the first few months, whereas HELOCs typically require immediate interest-only payments.
Due to their short-term nature and higher risk for the lender, bridge loans generally carry higher interest rates than traditional 30-year fixed mortgages. Borrowers should also expect to pay administrative fees and valuation costs associated with both properties.
Every bridge loan requires a clear exit strategy. The most common exit is the finalized sale of the borrower's previous residence. If the home does not sell within the loan term (usually 6–12 months), the borrower may need to explore a conventional refinance or an extension.
Closing on a bridge loan can often happen faster than a traditional mortgage—sometimes in as little as 10 to 14 days. This speed is essential for buyers who have found their "dream home" and need to move quickly to secure the contract.
Bridge loans are ideal for families upsizing to a larger home, retirees downsizing to a smaller property, or individuals relocating for work who need to secure housing in a new city before their old home is even on the market.