Quick answer

A bridge loan is a short-term loan that helps homebuyers complete the purchase of a new property before they’ve sold their existing one. It’s secured by the borrower’s current home, intended to be paid off when that home sells or when the borrower replaces the loan with longer-term financing. Because it’s temporary and higher risk for lenders, bridge financing usually carries higher fees and interest than traditional mortgages.

How bridge loans work — step by step

  1. Application and approval: The lender evaluates equity in your current home, credit, and income. Lenders typically require substantial equity (often 20–30% or more) and a strong credit profile.
  2. Collateral and loan structure: The existing home is used as collateral. The lender may place a first or second lien depending on existing mortgages.
  3. Funding and use: The bridge loan provides cash for the new home’s down payment or full purchase price (in the case of a cash-backed offer). The borrower makes interest-only or monthly payments during the term — sometimes payments are deferred to maturity.
  4. Exit: The borrower repays the bridge loan by selling the old home, refinancing into a longer-term mortgage (including a cash-out refinance), or using other liquidity (savings, HELOC, sale of assets).

Types of bridge loans

  • Open bridge loan: No fixed repayment date; lender expects sale of the old home within an agreed period but terms can be flexible.
  • Closed bridge loan: Has a fixed maturity date tied to a contract to sell the existing property (safer for lenders, sometimes cheaper for borrowers).
  • Single-close bridge: One closing that combines the bridge loan and a future mortgage into a single transaction; useful to avoid two settlements.

Common uses and real-world scenarios

  • Competitive markets: Buyers make stronger offers by financing a quicker close or cash offer with bridge funds.
  • Job relocations or tight timelines: Buyers who must move quickly but haven’t sold their home yet.
  • Renovation/resale strategies: Investors or homeowners who buy a new property while getting an older one ready for sale.

In my practice working with buyers moving between homes, I’ve seen bridge loans enable purchases that otherwise would have fallen through. They are especially valuable when the timing windows between closings are tight and the seller of the new property won’t accept a contingent offer.

Costs, rates, and typical terms

  • Loan term: Usually 6–12 months but can extend to 24 months depending on lender and market.
  • Interest rates: Higher than permanent mortgages; expect rates to be several percentage points above comparable long-term mortgage rates because lenders take additional short-term risk.
  • Fees: Origination fees, closing costs, and sometimes a one-time payoff fee. Some lenders also charge appraisal and legal fees.
  • Payment structure: Interest-only monthly payments are common; some lenders allow deferred interest but that increases payoff amount.

Always ask for a full cost breakdown (APR, origination fee, prepayment penalties, and estimated total cost at maturity).

Who qualifies — and who should avoid bridge loans

Good candidates:

  • Homeowners with substantial equity in their current home (the most important factor).
  • Strong credit scores and stable income.
  • A realistic, short timeline to sell the existing home.

Not a good fit:

  • Buyers with little equity, volatile income, or uncertain sale prospects.
  • Those who cannot afford higher interest or a worst-case scenario where the old home takes longer to sell.

Exit strategies (how you pay the loan back)

  1. Sell the existing home: The cleanest exit. Net sale proceeds repay the bridge loan. Prepare for contingencies if the sale takes longer than expected.
  2. Refinance into a permanent mortgage: Use a conventional mortgage, FHA, or VA financing to pay off the bridge loan. This may be structured as a rate-and-term or cash-out refi depending on equity.
  1. Convert to a HELOC or home equity loan: If you qualify, switching to a longer-term home-equity product can lower monthly costs. Compare HELOC vs home equity loan options in our explainer: HELOC vs Home Equity Loan Explained.
  2. Pay from savings or other liquid assets: Less common but avoids the refinancing step.

Plan for each scenario and have reserves to cover interest and holding costs for the full bridge term plus an extra buffer.

Pros and cons (practical view)

Pros:

  • Provides immediate liquidity so you can buy without selling first.
  • Strengthens offers in competitive markets (possible cash or faster-close offers).
  • Can be configured with flexible payoff terms.

Cons:

  • Higher cost: elevated interest rates and fees make them expensive if used for long periods.
  • Repayment risk: you still owe the loan if your home doesn’t sell on schedule.
  • Complex closing: some bridge loans involve additional liens or multiple closings.

Tax and regulatory considerations

Interest deductibility: In some cases, interest on a bridge loan may be treated as home mortgage interest and could be deductible if the loan proceeds were used to buy, build, or substantially improve a qualified home and other IRS rules are met. Tax law is specific and can change; consult IRS guidance (see IRS Publication 936) and a tax professional for your situation.

Consumer protections: Bridge loans are offered by banks, mortgage lenders, and private lenders. Consumer protection and mortgage rules apply differently depending on the lender type; for general mortgage guidance see the Consumer Financial Protection Bureau (CFPB) resources on mortgages (https://www.consumerfinance.gov/owning-a-home/mortgages/) and consult your state regulator for licensing rules.

Practical checklist before you apply

  • Verify the equity in your current home with an appraisal or recent market analysis.
  • Get a realistic market timeline for selling from your real estate agent.
  • Compare multiple lenders: ask for APR, fees, payment schedule, lien position, and maximum term.
  • Build a contingency plan for a 3–6 month slower-than-expected sale.
  • Confirm whether the bridge will require a second closing and what that cost/ timeline looks like.
  • Discuss tax implications with your CPA — especially if you plan to deduct interest.

Common mistakes I see with clients

  • Underestimating total cost: buyers focus on monthly interest but forget origination and closing fees.
  • Failing to test worst-case timing: houses sometimes take longer to sell; always model extended holding periods.
  • Overleveraging: using too much bridge financing can leave you with little cushion after paying fees and closing costs.

FAQs (brief)

  • How long can a bridge loan last? Typically 6–12 months, sometimes up to 24 months depending on lender.
  • Can I get a bridge loan with existing mortgage debt? Yes, if you have sufficient equity and the lender is willing to place a lien in the required position.
  • Are bridge loans regulated differently? Regulation varies by lender type and state; consumer protection resources are available at the CFPB.

Final recommendations (professional perspective)

In my 15 years advising homebuyers, bridge loans are a useful tactical tool but not a strategy for long-term financing. Use them when timing and market conditions make them the most cost-effective way to win a home purchase, and always demand a detailed written payoff scenario from the lender. When possible, consider alternatives first: negotiating a longer closing on the new purchase, arranging a contingent offer, or using a HELOC or cash reserves.

For more on related options, see our guides on Home Equity Loan and HELOC vs Home Equity Loan Explained.

Professional disclaimer: This article is educational and does not constitute individualized financial, legal, or tax advice. Rules and products change; consult a licensed mortgage professional and tax advisor before taking action.

Authoritative sources and further reading