Bridge Loans

Bridge Loans Explained

A bridge loan is a short term loan that helps a homeowner buy a new property before selling their current one. It “bridges” the financial gap between the two transactions. These loans are designed for situations where a borrower has strong equity in their existing home but needs access to that equity immediately in order to make a competitive offer on a new home.

Bridge loans are usually interest only and last six to twelve months. They are secured by the borrower’s current home, the new home, or both. Because they are temporary, the goal is not to keep them long term. The borrower either sells their old home and pays off the bridge loan or refinances into a permanent mortgage once the transition is complete.

Lenders look closely at the borrower’s equity position, credit profile, and exit strategy. They want to see that the borrower has a realistic plan for paying off the bridge loan within the short timeline. Documentation is similar to a standard mortgage, but the underwriting focuses more on assets, equity, and the strength of the overall plan rather than long term income stability.

Pros of Bridge Loans

• Allows buying before selling Borrowers can secure their next home without waiting for their current home to sell.

• Strengthens purchase offers Buyers can write non contingent offers, which are more attractive to sellers.

• Access to equity Homeowners can use the equity in their current home for the down payment on the new one.

• Short term flexibility Ideal for timing gaps, relocations, or competitive markets.

Cons of Bridge Loans

• Higher interest rates Rates are higher than standard mortgages because the loan is short term and carries more risk.

• Two payments at once Borrowers may temporarily carry the bridge loan and the new mortgage until their old home sells.

• Closing costs Fees can be higher than a traditional refinance.

• Strict exit strategy requirements Borrowers must have a clear plan to pay off the loan quickly.