Bridge Loans: How They Work and When to Use One

You found your dream home. Problem is, your current house hasn't sold yet. You don't want to make your offer contingent on selling — not in a competitive market. A bridge loan bridges that gap.

How a bridge loan works

A bridge loan is short-term financing (usually 6-12 months) secured by your current home's equity. You borrow against that equity to get cash for a down payment on your new home.

Example: Your current home is worth $500k, and you owe $300k. You have $200k in equity. A bridge loan gives you $100k of that equity as cash for your new down payment.

The numbers

• Interest rates: Higher than standard mortgages — typically prime + 1-2% (currently 9-11%).
• Fees: Origination fees, appraisal, and closing costs — often 1-2% of the loan.
• Term: Usually 6 to 12 months. If your house doesn't sell by then, you need a plan.
• Payoff: When your current home sells, the bridge loan gets paid off from the proceeds.

When to use a bridge loan

• You found your next home and need the equity from your current one for the down payment.
• You don't want a contingency clause (buyer can't close until their home sells).
• Your current home is likely to sell quickly in your market.
• You have enough cash flow to carry two mortgages if the sale takes longer.

When to avoid it

• Your current home is in a slow market and could take 6+ months to sell.
• You're stretching to afford both payments.
• You have other options (family loan, HELOC, seller financing).

Alternatives to bridge loans

• HELOC: A home equity line of credit on your current home. Lower rates, but you need enough equity.
• Contingent offer: Make your offer contingent on selling your current home. Riskier for the seller but safer for you.
• Gift funds: Family help for the down payment without taking on debt.

The takeaway: Bridge loans are expensive but effective. Use them when timing matters more than cost.