What Is a Bridge Loan? Financing the Gap Between Two Homes

A bridge loan is short-term financing that lets you use the equity in your current home to buy a new one before your old home sells. It solves a real timing problem — but it's expensive financing meant to be paid off in months, not years.

How a Bridge Loan Works

The lender lets you borrow against the equity in your existing, unsold home — typically up to 80% of its value minus what you still owe on the mortgage — and use that cash toward the down payment or purchase of your next home. Once your old home sells, you pay off the bridge loan in full, often within 6-12 months.

What It Actually Costs

• Interest rates typically run 1-2 percentage points above a standard mortgage rate
• Origination fees and closing costs on top of your new mortgage's closing costs
• You may be paying on three loans at once temporarily: your old mortgage, the bridge loan, and your new mortgage
• Some lenders only require interest-only payments during the bridge period, which softens the monthly cash flow hit

When a Bridge Loan Makes Sense

It's most useful in a competitive seller's market where making an offer contingent on selling your current home would put you at a disadvantage, or when you've found the right next home and don't want to rent in between. It's a tool for a specific timing problem, not a substitute for being able to afford the new home.

Alternatives Worth Comparing

• HELOC on your current home: usually cheaper than a bridge loan if you have time to set one up before listing
• Contingent offer: make your purchase contingent on selling your current home — slower, but no extra financing cost
• Rent-back agreement: sell first, then rent your old home from the buyer for a few weeks while you close on the new one