Quick overview

Bridge loans are short-term loans designed to “bridge” the timing gap between buying a new property and selling an existing one. Lenders underwrite these loans primarily on the collateral value of the property rather than on a standard mortgage underwriting timeline, so closings can be faster. Because they are meant to be temporary, bridge loans usually carry higher rates and fees than traditional mortgages and require a clear exit plan.

How bridge loans work — step by step

  1. Initial need and application: You identify a timing gap—commonly when you want to buy a new home before your current one sells. You apply to a lender that offers bridge financing. The lender will want proof of income, credit history, and a recent appraisal or broker price opinion for the property securing the loan.

  2. Loan structure and terms: Bridge loans can be structured several ways: as an interim mortgage on the home you are buying, as a second mortgage against the home you already own, or as a combination. Typical terms run 6–12 months, sometimes longer with extensions. Interest can be paid monthly, rolled into the loan, or handled via a balloon payment at maturity.

  3. Closing and use of funds: Because the underwriting focuses on the property value, closing often happens faster than a conventional mortgage. The loan proceeds are used to close on the new purchase, cover down payment gaps, or pay off short-term obligations.

  4. Exit strategy and repayment: The borrower repays the bridge loan when the original property sells or by refinancing into a long-term mortgage. A concrete exit plan and timeline are essential; lenders usually require one before approval.

Typical costs and how they compare

  • Interest rates: Bridge loan rates are commonly higher than standard mortgage rates. Market conditions change, but a realistic range in recent years has been roughly 6% to 15% depending on lender type, borrower credit, and loan-to-value (LTV) ratio. Always confirm current offers with lenders (Consumer Financial Protection Bureau guidance: https://www.consumerfinance.gov).
  • Fees: Expect lender origination fees, appraisal costs, title work, and possibly prepayment or extension fees.
  • Combined cost: Because rates and fees can be higher, a bridge loan’s total cost can exceed a short-term HELOC or a cash-out refinance, especially if the bridge takes longer than planned.

Who is a strong candidate for a bridge loan?

  • Homeowners with meaningful equity in their current property who need to act quickly on a new purchase.
  • Sellers who have a signed contract on their current home and just need temporary liquidity until closing.
  • Real estate investors needing fast capital to close competitive deals.

Weak candidates include buyers with limited equity, unstable income, or no clear plan to sell or refinance quickly.

Pros and cons (practical view from experience)

Pros:

  • Speed: You can close quickly and compete for desirable properties.
  • Flexibility: Multiple structures (second lien, temporary mortgage) let you tailor a solution.
  • Opportunity capture: Investors can move on deals without waiting for liquidation of other assets.

Cons:

  • Higher cost: Rates and fees typically exceed long-term mortgages.
  • Risk of a longer hold: If your original home doesn’t sell quickly, you may face extensions, higher interest, or stress selling at a discount.
  • Complexity: Lenders scrutinize property values and exit plans; terms vary widely.

In my practice I’ve seen clients who benefited greatly by securing a bridge loan to handle job relocations or time-sensitive purchases. But I’ve also seen sellers stretched by carrying two mortgages when a slow market extended the bridge beyond expected timelines.

Common structures and examples

  • Second-lien bridge: You keep your existing mortgage and add a bridge loan secured by your current home to fund the down payment on the new purchase.
  • Purchase-money bridge: The new property receives a short-term mortgage that will be paid off when your old property sells.
  • Hybrid: A lender provides funds against combined equity across two properties.

Real example: A client I worked with relocated for work and found a house in a competitive market. Their existing home had a pending sale contingent on minor repairs. A short second-lien bridge loan funded the down payment so they could close within two weeks; the bridge was repaid at their original closing two months later.

Alternatives to bridge loans (compare costs and risk)

  • HELOC (Home Equity Line of Credit): A revolving credit line secured by your home. It can be cheaper than a bridge loan but may not close as quickly or provide a large lump sum. See our guide: Home Equity Alternatives: HELOCs vs Home Equity Loans vs Cash-Out Refinance.

  • Cash-out refinance: Replaces your current mortgage with a larger loan and gives you cash-out proceeds. This usually offers lower rates than a bridge loan but takes longer to close. See our explainer on refinancing: Mortgage Refinancing: When to Refinance and Cost Considerations.

  • Contingent offer (selling contingency): Make an offer on a new home contingent on selling your current home. This avoids bridge costs but can be less competitive in hot markets.

  • Seller rent-backs or leaseback agreements: Negotiate with buyers/sellers to stay in place after closing or let the seller remain temporarily.

Choosing an alternative often depends on how fast you need funds, the relative cost, and your risk tolerance.

Underwriting details lenders focus on

  • Loan-to-value (LTV) and combined LTV (CLTV): Lenders assess equity available across involved properties.
  • Appraisals and valuations: Up-to-date appraisals or broker price opinions are usually required.
  • Exit plan proof: A signed purchase contract on the selling property or strong refinance pre-approval helps approval odds.
  • Debt-to-income (DTI) and credit: While property value is key, your credit profile and DTI still matter.

Mistakes to avoid

  • No exit plan: Taking a bridge loan without a realistic sale/refinance plan is risky.
  • Underestimating carrying costs: Remember insurance, taxes, and potential double mortgage payments.
  • Not shopping lenders: Terms and fees vary widely—compare bank offers, credit unions, and private lenders.

Checklist before you sign

  • Get a clear payoff timeline and understand extension fees.
  • Compare total all-in costs (interest + fees + closing costs) to alternatives.
  • Confirm what happens if your original property doesn’t sell on time.
  • Talk to your mortgage broker or financial advisor about tax and cash-flow impacts.

Tax and regulatory notes

Interest on bridge loans secured by your primary home may be tax-deductible only if the funds meet IRS rules for mortgage interest deduction (consult IRS guidance or a tax professional). The Consumer Financial Protection Bureau publishes consumer-facing information on short-term mortgage alternatives and safety considerations (cfpb.org).

Final advice

Bridge loans can be a powerful tool for buyers and investors who need speed and have a clear exit plan. They are not free money: expect higher rates and tighter underwriting. In my experience advising clients, successful bridge loan use comes down to preparing a realistic sell- or refinance-timeline, getting multiple quotes, and choosing lenders familiar with short-term residential financing.

This article is educational and does not replace personalized financial or tax advice. Consult a certified financial planner or mortgage professional to review your specific situation.

Sources and further reading