A bridge loan is a short-term loan (6-12 months) secured by your current home, used to fund the down payment and closing costs on your next home. It "bridges" the timing gap: you buy your new home before your old one sells, avoiding the need to sell first, rent temporarily, and move twice.
Your current home is worth $500,000 with a $200,000 mortgage balance ($300,000 equity). You want to buy a $600,000 new home. A bridge loan uses your $300,000 equity as collateral to provide funds for: down payment on new home ($120,000 at 20%), closing costs (~$18,000), and possibly mortgage payments on both homes during the overlap. When your old home sells, the bridge loan is paid off from the sale proceeds. The remaining equity ($300,000 - bridge loan balance) goes to you.
A separate loan (second mortgage) on your current home that provides cash for the new home purchase. You make payments on three things simultaneously: old mortgage, bridge loan, and new mortgage. Higher risk, higher rates. Typically requires strong credit (680+) and significant equity (20%+ after the bridge).
One loan that covers both the bridge and the permanent mortgage on the new home. Simplifies the process. May offer better rates on the blended loan. Particularly useful when you have a contract on your old home but it hasn't closed yet.
Use a HELOC or home equity loan on your current home as the "bridge." Typically cheaper than a traditional bridge loan (better rates, lower fees). Requires sufficient equity and credit. The challenge: you need to qualify carrying both the HELOC and the new mortgage simultaneously.
| Cost Item | Typical Range |
|---|---|
| Interest Rate | 8-12% (2-4% above prime). Higher than standard mortgages due to short-term risk. |
| Origination Fee | 1-3% of loan amount. Can be rolled into the loan or paid from sale proceeds. |
| Appraisal | $400-$600 for current home. Used to determine available equity. |
| Closing Costs | $500-$2,000 additional. Title, recording, underwriting fees. |
| Total Cost (6 months, $150k loan) | $9,000-$15,000 (interest + fees). Bridge loans are expensive — the convenience comes at a cost. |
If you have significant equity, a HELOC is typically cheaper than a bridge loan (prime rate + margin, currently ~8-9%) and you only pay interest on what you draw.
Sell your home with a rent-back agreement (post-occupancy) giving you 30-60 days to find and close on a new home. Avoids the cost of a bridge loan entirely.
Make your offer contingent on selling your current home. In hot markets, sellers may reject these — but in balanced markets, it's a viable strategy that costs nothing.