Overview

Short-term bridge loans provide fast, short-duration financing so a buyer can close on a new property before their current home sells. Lenders often underwrite these loans based on the equity in the existing property, not just the borrower’s income. Because they are designed to be temporary (commonly 6–12 months), bridge loans usually carry higher interest rates and fees than standard mortgages.

How borrowers typically exit a bridge loan

  • Sell the existing home and repay the bridge loan from the sale proceeds (most common).
  • Refinance the new purchase into a permanent mortgage (conventional, FHA, VA), sometimes using a bridge-to-permanent product. See bridge-to-permanent timing and risks for details: Bridge-to-Permanent Financing: Timing and Risks.
  • Convert equity lines or take a HELOC as a follow-on financing source.
  • Rent the prior home to generate income and either continue monthly payments or qualify for long-term financing later.
  • Use savings or a home equity loan as a fallback to pay off the bridge loan.

What lenders expect

Lenders want a credible exit plan: a realistic sales timeline, a contract on the prior home, a refinance pre-approval, or proof of alternative repayment funds. Expect LTV limits on combined loan amounts, interest-only payment features, and short maturity dates. The Consumer Financial Protection Bureau recommends shopping lenders and comparing terms for short-term mortgage products (CFPB: https://www.consumerfinance.gov).

Practical steps to structure a reliable exit strategy (in my practice)

  1. Quantify the buffer. Model conservative sale timing and include 2–3 months of carrying costs (interest, insurance, taxes).
  2. Get a realistic price range. Work with an agent to set a competitive listing price and timeline.
  3. Line up the follow-on financing early. Apply for your permanent mortgage or confirm a HELOC before closing on the bridge loan.
  4. Use the contingency toolbox. If possible, negotiate offers with contingent sale protection or bridge-clause extensions.
  5. Document exit proof for the lender. A pending sale contract, appraisal-based valuation, or refinance pre-approval strengthens the case and can lower lender resistance.
  6. Plan for Plan B. If the sale stalls, be ready to rent the old home, refinance, or pay down the bridge with savings.

Costs, risks, and tax notes

  • Costs: higher rates and fees, interest accrual while you carry two properties, and potential extension fees if the sale takes longer than expected.
  • Risks: unsold inventory that extends the bridge term, falling home prices that reduce sale proceeds and equity, and qualification risk for the follow-on mortgage.
  • Taxes: selling a primary residence may qualify for the home sale gain exclusion under IRS rules (see IRS Publication 523, “Selling Your Home”) but consult a tax advisor for your situation (IRS: https://www.irs.gov/publications/p523).

Common mistakes I see

  • Underestimating carrying costs and the time it takes to sell.
  • Lacking a confirmed refinance path before taking a bridge loan.
  • Relying solely on optimistic sales projections without a cash fallback.

Real-world example

A client relocating for work used a six-month bridge loan secured by their current home’s equity to close on a new property. We listed the old house immediately, set a competitive price, and submitted a refinance application for the new mortgage during the bridge term. The old house closed in four months and sale proceeds repaid the bridge loan with minimal extension fees.

When to consider alternatives

If you lack sufficient equity, stable credit, or a clear sale path, alternatives include negotiating a longer closing on the new purchase, asking the seller for a delayed possession, using seller financing if available, or considering a HELOC in place of a bridge loan. Compare all options carefully; the CFPB offers consumer guidance on mortgage shopping and short-term financing (https://www.consumerfinance.gov).

Links to related articles

Professional disclaimer

This article is educational and not individualized financial advice. Your situation may differ—consult a mortgage professional, tax advisor, or attorney before using short-term bridge financing.