Bridge loans solve a specific problem: you found your new home before selling your old one, and you need the equity from the old house to buy the new one.
They're expensive and short-term, but sometimes they're exactly what you need.
The Basic Situation
You own a home worth $400,000 with $200,000 in equity. You want to buy a new home for $450,000. You need $90,000 for the down payment.
Without selling first, you don't have that $90,000. But if you sell first, you're homeless during the search—or paying rent somewhere while trying to buy.
A bridge loan lets you access your equity before selling.
How Bridge Loans Work
A bridge loan is a short-term loan (typically 6-12 months) secured by your current home. It provides cash for your new home's down payment while you haven't yet sold.
Once your old home sells, you pay off the bridge loan from the proceeds.
**Typical terms**: - 6-12 month term - Interest rates 8-12% or higher - 1-2 points in fees - Often interest-only payments
The Math
Let's say you borrow $100,000 as a bridge loan at 10% interest.
Monthly interest-only payment: ~$833
If your home sells in 4 months, you've paid about $3,300 in interest plus any origination fees.
It's expensive, but it might be worth it to avoid losing your dream home or making a contingent offer.
The Risks
**Your home doesn't sell quickly**: If it takes 8-10 months instead of 3-4, you've paid much more interest. If it takes longer than the loan term, you need to refinance, extend, or face default.
Run the numbers for your situation: Use our free loan amortization calculator to see your exact monthly payment, total interest, and full amortization schedule.
**It sells for less than expected**: You're counting on sale proceeds to repay the bridge loan. If your home sells for $50,000 less than expected, that affects your plans.
**You're carrying two mortgages**: Old mortgage + bridge loan payments + new mortgage payments during the overlap period. Can you afford all three?
Alternatives to Bridge Loans
**Sell first, buy second**: Most straightforward. Sell, move to temporary housing, then buy. Inconvenient but risk-free.
**Contingent offer**: Make your new home offer contingent on selling your current home. In competitive markets, sellers may reject this. In slower markets, it might work.
**HELOC ahead of time**: Open a home equity line of credit before listing your home. Use it for the down payment. Interest rates are typically lower than bridge loans. But you need to qualify while still owning the home.
**80-10-10 loan structure**: Put 10% down on the new home, get an 80% first mortgage and 10% second mortgage. Refinance after selling to eliminate the second mortgage.
When Bridge Loans Make Sense
**Hot seller's market**: Your home will likely sell quickly at or above asking price. The risk of extended bridge loan duration is low.
**You've found an exceptional property**: Waiting to sell first means losing a specific home you really want.
**You can afford the overlap**: Even if things take longer than expected, you won't be financially stressed carrying the extra debt.
**You have equity**: Bridge loans require substantial equity—typically you can borrow up to 80% of combined home values.
When to Avoid Them
**Slow market**: If homes in your area sit for months, the bridge loan could get expensive or expire.
**Tight budget**: If the extra payments strain you, things go wrong fast.
**Uncertain sale price**: If your home's value is hard to pin down, you might not get the proceeds you're counting on.
Finding Bridge Loans
Not all lenders offer bridge financing. Start with: - Your current mortgage lender - Local banks and credit unions - Mortgage brokers who work with multiple lenders
Shop rates and terms. Bridge loan pricing varies significantly.
The Decision Framework
Ask yourself: 1. How confident am I that my home will sell within 3-4 months? 2. Can I afford to carry the extra payment if it takes 6-8 months? 3. What happens if my home sells for 10% less than expected? 4. Is the specific new home worth this cost and risk? 5. Have I explored alternatives (HELOC, contingent offer, selling first)?
If the answers are favorable, a bridge loan might be the right tool. If any answer is uncertain, reconsider.
Bridge loans are expensive but effective tools for the right situation. Just make sure your situation actually warrants one.
