Background

Bridge loans emerged to solve a common timing problem: buyers find a new home before their current one has sold. In my 15 years advising clients, I’ve seen bridge loans give buyers the ability to make stronger offers—sometimes all-cash—so they can win properties in competitive markets. However, that advantage comes with higher costs and the obligation to manage short-term financing risk.

How bridge loans work (brief)

  • Structure: Most bridge loans are interest-only for the term, with either a balloon payment at maturity or conversion into a long-term mortgage.
  • Speed: Lenders can fund these loans faster than conventional mortgages, often in weeks.
  • Collateral: The loan is usually secured by your existing home, the new home, or both.

When to consider a bridge loan

  • You have substantial equity in your current home and it’s likely to sell quickly.
  • You’ve found a property in a low-inventory market where cash or fast closing is an advantage.
  • You don’t want a contingency clause that depends on selling your home.

Timing and typical terms

  • Typical term: several months up to 1–3 years, depending on the lender.
  • Repayment expectation: lenders expect sale proceeds or a refinance to pay off the bridge loan within the term.

Common exit strategies

  1. Sell the current home and use proceeds to pay the bridge loan. This is the most common and lowest-cost exit.
  2. Refinance the bridge loan into a conventional mortgage on the new home once you qualify for long-term financing.
  3. Convert to or draw a HELOC on the sold or retained property to cover the bridge repayment.
  4. Carry both mortgages temporarily if you can afford payments and have a longer timeline to sell or rent the old home.
  5. Rent out the current home and use rental income (plus savings) to cover bridge payments; this requires planning and local landlord readiness.

Costs and risks

  • Higher interest and fees: Bridge loans typically carry higher rates and origination fees than standard mortgages.
  • Double payments: If your current home doesn’t sell quickly, you may make payments on two properties.
  • Collateral risk: Because the loan is secured by your home, failure to repay can put that property at risk.

Eligibility and underwriting

Lenders generally look for substantial home equity, a stable credit history, and sufficient debt-to-income capacity to handle temporary overlapping payments. Exact requirements vary—shop lenders and get written terms.

Real-world example

A client in a tight market used a three-month bridge loan to make an all-cash offer on a new house. They paid interest-only while their condo sold at full price two months later; proceeds repaid the bridge loan, and the client closed with a conventional mortgage on the new home.

Practical tips for first-time buyers

  • Build an exit plan before you sign: know which of the exit strategies you’ll use and alternatives if the sale stalls.
  • Price your current home competitively and stage it to reduce time on market.
  • Run cash-flow scenarios showing worst-case timelines: six, nine, and 12 months.
  • Get lender terms in writing: fees, prepayment penalties, and what happens if you can’t sell in time.
  • Compare bridge loans to alternatives (temporary HELOC, contingency offer, or carrying two mortgages).
  • Work with a real estate agent and mortgage professional experienced in bridge financings.

Common misconceptions

  • Myth: Bridge loans are the same as payday or personal loans. Fact: Bridge loans are secured, mortgage-like products with specific short-term goals.
  • Myth: They’re only for investors. Fact: They are a tool for primary-home buyers too—especially when timing matters.

Related resources on FinHelp

Frequently asked questions

Q — What if my home doesn’t sell before the loan matures?
A — Options include refinancing the bridge loan, extending it (if lender permits), selling other assets, or carrying two loans. Each has costs; plan ahead.

Q — Will a bridge loan hurt my mortgage approval for the new home?
A — It can affect debt-to-income ratios. Lenders assess your overall ability to repay; a bridge loan may require stronger documentation or reserves.

Authoritative sources and further reading

Professional disclaimer

This article is educational and not individualized financial advice. Bridge loans carry real costs and risks; consult a mortgage professional or financial advisor who can review your specific finances and local market conditions before borrowing.