Bridge Loan Financing
A bridge loan is short-term financing used to 'bridge' the gap between purchasing a new home and selling your current one. These loans typically last 6-12 months and are secured by your existing home's equity. Bridge loans allow you to make non-contingent offers on a new home, making your offer more attractive to sellers in competitive markets.
Bridge loans are more expensive than traditional mortgages due to their short-term nature and higher risk. Interest rates typically run 2-4% above conventional mortgage rates, and lenders charge origination fees of 1-3%. Most bridge loans are interest-only, with the principal due when you sell your current home. Some lenders offer the first few months interest-free if you use them for the new mortgage.
Consider alternatives before using a bridge loan: home equity line of credit (HELOC), personal loan, 401(k) loan, or making a contingent offer on the new home. Bridge loans make sense when you need to move quickly, are confident your current home will sell within months, and have substantial equity. They're risky if your home doesn't sell - you'll be carrying two mortgages plus the bridge loan.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Homeowners with substantial equity who need to buy before selling in a competitive market. Best for those confident their home will sell quickly and can handle the financial strain if it takes longer than expected.
If your home doesn't sell quickly, you're paying three sets of housing costs (old mortgage, bridge loan, new mortgage). This can drain savings and create financial stress. Market downturns can make selling harder.
Difficult. Lenders typically require 680+ credit scores and significant equity. Bridge loans are riskier, so lenders have stricter requirements than conventional mortgages.
Typically up to 80% of your current home's value minus the mortgage balance. Some lenders go higher for well-qualified borrowers. You must have enough equity to cover both loans.
You may need to extend the bridge loan (with fees), use savings to pay it off, or potentially sell the new home. This is why having a backup plan and substantial equity is crucial.