A bridge loan works by letting you borrow against the equity in your current home to fund the purchase of a new one, then paying that short-term loan off when the old home sells. Terms usually run six to twelve months, rates are higher than a standard mortgage, and the loan is secured by real estate — your current home, the new one, or both. The appeal is timing: you can close on the new house, and often make an offer without a home-sale contingency, before your existing property has a buyer.
What the Loan Actually Does
The lender looks at your current home’s appraised value, subtracts the remaining mortgage balance, and uses the equity as collateral. You can generally finance up to 80 percent of the combined value of both homes, with the balance coming from existing equity, savings, or both.
Most bridge loans are interest-only. Your monthly payment covers the interest charge and nothing toward principal, which keeps carrying costs manageable while you may be paying on two properties. Some lenders offer a deferred-payment version instead: nothing is due each month, interest accrues over the term, and everything gets settled in one lump sum when the loan is paid off. That option preserves cash but raises the final payoff.
First-Lien vs. Second-Lien Structures
Lenders typically offer the loan in one of two forms, and the choice determines how many payments you make each month.
- First-lien bridge loan. The bridge loan pays off your existing mortgage in full and replaces it with a single, larger short-term loan. You have one monthly payment during the bridge period.
- Second-lien bridge loan. Your existing mortgage stays where it is, and the bridge loan sits behind it as an additional lien. You make two payments: the original mortgage and the bridge loan.
The first-lien version simplifies your monthly obligations but has a larger balance because it absorbs your old mortgage. The second-lien version keeps a low existing rate intact, which matters if the mortgage you already have is cheaper than anything you could get today.
What a Bridge Loan Costs
Rates run about two to four percentage points above the going rate on a 30-year fixed mortgage, often landing between 7 and 11 percent depending on the lender, your credit, and the loan size. The short term and the added risk of lending against a property you’re actively trying to sell drive the pricing.
On top of the rate, plan for:
- Origination fees, typically 0.5 to 2 percent of the loan amount.
- Closing costs of roughly 1.5 to 3 percent, covering title insurance, recording fees, and administrative charges.
- Appraisal fees on both properties, at several hundred dollars each.
On a $200,000 bridge loan, origination and closing costs alone can total $3,000 to $10,000 before any interest accrues. The monthly payment is only part of the picture.
What Lenders Look For
Because you’ll be carrying debt on two properties, at least temporarily, lenders set the bar higher than for a standard purchase mortgage. Common thresholds:
- At least 20 percent equity in your current home after the bridge loan is applied.
- A credit score around 680 minimum, with 720 or higher preferred by some lenders.
- A debt-to-income ratio, counting all obligations including the bridge loan and any existing mortgage, that stays below roughly 43 to 50 percent.
- Evidence that the current home is listed for sale, or a concrete plan to list it within the loan term.
One regulatory point worth knowing: bridge loans with terms of 12 months or less are exempt from the federal ability-to-repay analysis that applies to most residential mortgages.1eCFR. 12 CFR 1026 – Truth in Lending (Regulation Z) Lenders aren’t required to verify your repayment capacity under the same standards used for a 30-year mortgage, though most still run their own underwriting for risk reasons. The Truth in Lending Act still applies, so you should receive clear disclosure of the rate, fees, and repayment schedule before you sign.2Office of the Law Revision Counsel. 15 USC 1601 – Congressional Findings and Declaration of Purpose
How You Pay It Back
The sale of your current home is the primary repayment trigger. When that sale closes, the title company sends a portion of the proceeds directly to the bridge lender to pay off the balance in full — principal plus any accrued interest. Under a deferred-payment structure, all the accrued interest is included in that single payoff.
Many bridge loans also include a balloon provision: the entire remaining balance is due on a specific date whether or not your home has sold. That hard deadline usually matches the loan term of six to twelve months.
If You Need More Time
If the home hasn’t sold when the loan matures, you may be able to negotiate an extension rather than default. Extensions aren’t free. Lenders commonly charge an extension fee of 0.5 to 1.5 percent of the remaining principal, plus legal and documentation fees ranging from a few hundred to a few thousand dollars. Some lenders also raise the interest rate during the extension. Stepped pricing is common: a first three-month extension might cost half a point, and a second three-month extension a full point.
The Risk If the Old Home Doesn’t Sell
This is the scenario to think through before signing. If the current home lingers and no extension is available, the pressure compounds:
- You may be paying a mortgage on the old home, a mortgage on the new home, and the bridge loan at the same time. Savings drain quickly.
- Once the bridge loan enters default, penalty interest rates and forbearance fees can climb sharply.
- The lender can foreclose on whatever property secures the loan. Depending on the structure, that could be the old home, the new home, or both.
Look at how long homes are actually sitting on the market where you live before you commit. In a slow market, the cost and risk of a bridge loan can outweigh the convenience it offers.
Cheaper or Safer Alternatives
A bridge loan isn’t the only way to buy before you sell. Each option below trades speed for cost or risk in a different way.
- Home equity line of credit (HELOC). Borrow against your current home’s equity on a revolving basis, typically at a lower rate than a bridge loan and with repayment terms stretching five to 30 years. Setup takes two to six weeks, so it works only if you can plan ahead.
- Home equity loan. A lump sum against your equity with fixed monthly payments. Good when you know the exact amount you need and want predictable payments, but the setup timeline is similar to a HELOC.
- Contingent offer. Make the new-home offer contingent on selling your current one. It costs nothing, but sellers in competitive markets often pass on contingent offers.
- Sale-leaseback. Sell the current home first and rent it back from the buyer for a short period while you close on the new one. Avoids two mortgages, but only works if the buyer agrees.
A HELOC generally wins on cost when you have time to arrange it. A bridge loan makes more sense when you need funds fast and have substantial equity to draw on.