What a bridge loan does and when you need one
A bridge loan is a short-term loan that covers the gap between buying a new home and selling your current one. You borrow against the equity in your existing house, use that money as a down payment on the new property, then repay the bridge loan when your old house sells. The lender typically holds a second mortgage on your current home as security.
You need a bridge loan when you want to close on a new home before your current one sells. Without it, you would have to choose between making an offer contingent on selling your existing house (which most sellers reject) or carrying two mortgages simultaneously until the first house sells. A bridge loan lets you move forward on the new purchase without that contingency.
Bridge loans are most common in competitive markets where homes sell quickly and where you have substantial equity built up. They are less practical if your current home is difficult to sell, if you have little equity, or if you are moving to a slower market where sales take months.
Key Takeaways
- A bridge loan borrows against your current home's equity to fund a down payment on a new one, then gets repaid when the old house sells.
- Bridge loans typically last three to six months, carry interest rates 1 to 3 percent higher than standard mortgages, and charge origination fees of 1 to 3 percent of the loan amount.
- You will need a home appraisal, proof of equity, a purchase agreement on the new home, and a real estate agent's assessment of your current home's sale timeline.
- Lenders require that your current home will sell within a set timeframe, usually 6 to 12 months, or they may demand full repayment even if it has not sold.
- If your current home does not sell by the important date, you may face a balloon payment, forced sale, or refinancing into a longer-term loan at higher rates.
How much a bridge loan costs
Bridge loans are expensive compared to standard mortgages because they are short-term and carry more risk for the lender. Interest rates typically run 1 to 3 percentage points higher than your primary mortgage rate. If conventional mortgages in your area are at 6.5 percent, expect a bridge loan to cost between 7.5 and 9.5 percent.
You also pay an origination fee upfront, usually 1 to 3 percent of the loan amount. On a $200,000 bridge loan, that means $2,000 to $6,000 due at closing. Some lenders charge appraisal fees, title fees, and underwriting fees on top of that. A few lenders offer "interest-only" bridge loans where you pay only interest during the loan term, not principal, which lowers your monthly payment but does not reduce what you owe.
The total cost depends on how long you carry the loan. A bridge loan held for three months costs far less than one held for nine months. Before you commit, calculate the total interest and fees against the benefit of not carrying two mortgages or making a contingent offer.
What lenders require before approving a bridge loan
Lenders need to know your current home will sell and that you can cover payments if it does not. They will ask for a current appraisal of your existing house to confirm you have equity to borrow against. Most lenders require at least 20 percent equity, though some accept 15 percent. If your home is worth $400,000 and you owe $300,000, you have $100,000 in equity — enough to may have access to.
You will need a purchase agreement on the new home showing the sale price and closing date. Lenders also want a real estate agent's comparative market analysis (CMA) or broker's opinion of value (BPO) for your current home, which estimates how long it will take to sell and at what price. This document is crucial because the lender uses it to decide whether to approve the loan and how much to lend.
Bring recent pay stubs, tax returns, and bank statements to show you can make monthly payments on both the bridge loan and your new mortgage simultaneously. Lenders will run your credit report and verify your employment. Some require a pre-approval letter for your new mortgage before they will fund the bridge loan.
The timeline: how long bridge loans last and what happens at the end
Bridge loans typically last three to six months, though some extend to nine or twelve months. The lender sets a maturity date — the date by which your current home must sell and the bridge loan must be repaid. If your house sells before that date, you use the proceeds to pay off the bridge loan and keep any remaining equity.
If your home has not sold by the maturity date, you face three possible outcomes. First, the lender may allow an extension, usually for an additional fee and at a higher interest rate. Second, the lender may demand full repayment when ready, forcing you to refinance the bridge loan into a longer-term loan or use savings to pay it off. Third, some lenders include a "take-back" clause allowing them to list and sell your home themselves if you cannot repay, though this is rare and usually only in distressed situations.
To avoid these scenarios, be realistic about your current home's sale timeline. If your real estate agent says the market is slow and homes are taking six months to sell, do not accept a bridge loan with a four-month maturity date. Build in a buffer.
How to find and compare bridge loan lenders
Bridge loans are offered by traditional banks, credit unions, mortgage brokers, and specialized bridge lenders. Start with your current mortgage lender — they already know your financial history and may offer better rates to existing customers. Call your bank's mortgage department and ask if they offer bridge financing.
Mortgage brokers often have access to multiple lenders and can shop rates on your behalf. Ask a broker to provide quotes from at least three lenders so you can compare interest rates, fees, and loan terms side by side. Request the annual percentage rate (APR), which includes both interest and fees, so you can compare the true cost.
Specialized bridge lenders exist in most major markets and often move faster than banks, though they typically charge higher rates. If you are in a competitive market and need to close quickly, a specialized lender may be worth the extra cost. Ask your real estate agent for referrals — they often work with bridge lenders regularly and know which ones are reliable.
Alternatives if a bridge loan does not make sense for you
If bridge loan costs are too high or your current home's sale timeline is uncertain, consider other options. A home equity line of credit (HELOC) or home equity loan lets you borrow against your current home's equity at lower rates than a bridge loan, though the approval process is slower and you carry the debt longer. A HELOC works like a credit card — you borrow only what you need and pay interest only on what you use.
You can also ask your real estate agent to help you make a strong offer on the new home with a sale contingency, meaning the offer is conditional on your current home selling. In a buyer's market, sellers sometimes accept these. In a seller's market, they rarely do, but it is worth asking.
Another option is to delay your new purchase until your current home sells. This removes the financial risk but means waiting, which may not be practical if you have already found the right home or have a job relocation important date. Weigh the cost of a bridge loan against the cost of delay or the risk of losing the home you want.
What to watch out for when using a bridge loan
The biggest risk is that your current home does not sell by the maturity date. Before you sign, confirm that your real estate agent's timeline is realistic for your market. Ask your agent how many similar homes are on the market, how long they typically take to sell, and whether the current market is moving faster or slower than usual. If there is doubt, negotiate a longer bridge loan term or plan a backup strategy.
Watch the interest rate environment. If rates drop significantly while you are carrying the bridge loan, refinancing your new mortgage becomes cheaper, but you are still paying the higher bridge loan rate on the old home's equity. Some lenders allow you to lock in a rate on your new mortgage before the bridge loan closes, which protects you if rates rise.
Make sure you understand what happens if you cannot repay. Read the loan documents carefully and ask the lender to explain the maturity date, any extension options, and what occurs if your home does not sell. Do not assume the lender will work with you — bridge loans are designed to be short-term, and lenders expect repayment on schedule.
Frequently Asked Questions
Can I get a bridge loan if I have not found a new home yet?
Most lenders require a purchase agreement on the new home before they will fund a bridge loan. A few specialized lenders will approve a bridge loan based on a pre-approval letter for a new mortgage and an estimate of the purchase price, but this is uncommon. It is easier to find a home first, make an offer, and then explore for the bridge loan.
What if my current home sells for less than I owe on the mortgage?
If you are underwater on your current mortgage, you cannot use a bridge loan because there is no equity to borrow against. You would need to bring cash to closing to cover the shortfall, or negotiate a short sale with your lender. Talk to your lender and a real estate attorney before pursuing a bridge loan in this situation.
Do I have to make payments on both the bridge loan and my new mortgage at the same time?
Yes. While you are carrying both loans, you make monthly payments on the bridge loan and on your new mortgage. Some bridge loans are interest-only, which lowers the bridge payment but not the new mortgage payment. Budget for both payments until your current home sells.
Can I use a bridge loan if I am self-employed or have irregular income?
Self-employed borrowers can get bridge loans, but lenders typically require two years of tax returns and may ask for bank statements showing consistent income. Some specialized bridge lenders are more flexible than banks. Bring detailed financial records and be prepared to explain your income pattern to the lender.
What happens to my bridge loan if I decide not to buy the new home?
If you back out of the new home purchase, you still owe the bridge loan. The lender will demand repayment, usually within 30 days. You would need to refinance it into a home equity loan or pay it off with savings. This is why it is important to be certain about the new purchase before you explore for a bridge loan.