What Is Bridge Loan?
A short-term loan that covers the gap between buying a new home and selling your current one.
Definition
A bridge loan is a temporary financing tool for homeowners who want to buy their next home before their current home sells. The lender uses equity in your existing home to fund the down payment on the new one. Bridge loans are typically 6 to 12 months in duration, carry rates in the 8-12% range, and come with origination fees. The primary risk: if your current home sells for less than expected or takes longer than anticipated, you could be stuck carrying two mortgages and the bridge loan simultaneously. Bridge loans are most practical in strong sellers' markets where homes move quickly. Alternatives include HELOCs, contingent offers, or negotiating a longer closing period on the new purchase.
Example
You owe $180,000 on a home worth $400,000 and need $80,000 for the down payment on a new home. A bridge loan lets you borrow against the $220,000 in equity before your old home sells.