To get a bridge loan, you borrow against the equity in your current home to cover the down payment or purchase price of a new one before the old property sells. Lenders typically want at least 20 percent equity, a credit score of 680 or higher, and enough income to handle payments on both homes at once. Funding can come through in as little as a few days from a private lender or two to four weeks from a bank, so the first decision is often which type of lender fits your timeline.
What You Need to Qualify
Equity is the anchor. Most lenders require at least a 20 percent ownership stake in your current home, because that equity is the collateral backing the loan. It also caps how much you can borrow: bridge loans are usually limited to 80 percent of the current home’s appraised value, combining your existing mortgage balance and the new bridge loan. If you owe $200,000 on a home appraised at $400,000, you could borrow up to $120,000.
Your debt-to-income ratio matters almost as much. Lenders add your current mortgage payment and the projected bridge loan payment to your other monthly debts and compare the total to your gross monthly income. Staying under 50 percent makes approval easier, and a lower figure tends to earn better terms.
Credit score sets the pricing tier. A FICO score of 680 is the common floor, but scores above 720 open the door to lower rates and more flexible terms. Private lenders will sometimes accept weaker credit if the property itself is strong collateral, though you’ll pay for that flexibility.
Documents to Have Ready
The application moves faster when the paperwork is already assembled. Lenders want to see both properties clearly, verify your income, and understand exactly how you plan to repay.
- A current mortgage payoff statement from your servicer, showing the exact balance owed.
- A recent professional appraisal or your listing price for the current home, so the lender can calculate the loan-to-value ratio.
- The purchase agreement for the new home, including price, expected closing date, and contingencies.
- Federal tax returns from the previous two years and pay stubs covering the last 30 days.
- Bank statements from the last two months to prove liquid reserves for the down payment, closing costs, and any interim payments.
- The legal description of your current property, which appears on your most recent property tax statement or deed.
The document that trips people up most often is the exit strategy. Underwriters want a written explanation of how the bridge loan will actually be repaid, which almost always means the sale of your current home. Include the anticipated listing price, your agent’s marketing timeline, and a backup plan if the property doesn’t sell within the loan term. Precise numbers pulled from your payoff statement and purchase agreement make this section credible and reduce the odds of a rejection during underwriting.
Where to Get One
Bridge loans come from two broadly different sources, and the choice usually comes down to how fast you need the money.
Banks and Credit Unions
Traditional lenders offer lower interest rates and origination fees, but underwriting is stricter and the process takes longer. They operate under federal consumer protection rules, including the Truth in Lending Act, which requires clear disclosure of the APR, all fees, and the total cost before you sign.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosures Many banks prioritize existing customers who already hold a mortgage or deposit account with the institution. Expect two to four weeks from application to funding.
Private and Hard Money Lenders
Private lenders weigh the collateral more heavily than your personal credit, which makes them an option when a bank’s standards are out of reach. They can close in as little as two to three weeks, and sometimes fund within 48 to 72 hours on straightforward deals. The trade-off is cost: higher interest rates and more origination points. They aren’t subject to the same federal oversight as banks but must still follow state lending and fair-practice laws.
If you’re competing for a home in a fast-moving market, the lender’s funding speed may matter as much as the rate. If you have time to plan, a bank usually wins on total cost.
What It Will Cost
Bridge loans are more expensive than conventional mortgages on nearly every line.
- Interest rates generally fall between 8 and 12 percent, depending on credit, lender type, and market conditions. For reference, the current prime rate is 6.75 percent, and bridge loan rates typically carry a spread of several percentage points above that benchmark.2Board of Governors of the Federal Reserve System. H.15 – Selected Interest Rates
- Origination points are charged at closing, with one point equal to one percent of the loan amount. Banks tend to charge 1 to 1.5 points; private lenders commonly charge 1.5 to 3.
- Closing costs run roughly 1.5 to 3 percent of the loan amount, covering the appraisal, title search, recording fees, and administrative processing. On a $150,000 bridge loan, that’s about $2,250 to $4,500.
Because the loan is short, you’re paying those upfront costs over a compressed window, which pushes the effective cost above what the sticker rate suggests.
How Repayment Works
Bridge loans don’t follow a 15- or 30-year amortization. Terms usually run six to twelve months, though some lenders offer as short as three months or as long as three years. Within that window, you’ll typically choose from three repayment shapes:
- Interest-only payments each month, with the full principal due when your home sells. This keeps monthly costs low during the overlap.
- Deferred payments with a balloon at maturity. The lender adds interest to the balance each month, and you pay nothing until the loan matures, when principal plus accumulated interest comes due in a lump sum from the sale proceeds.
- Partial principal plus interest, resembling a conventional mortgage compressed into a much shorter timeline.
If you can comfortably carry monthly payments on two properties, interest-only reduces the total interest you’ll pay. If cash is tight, deferred payments give breathing room, but the balloon at the end will be larger.
Application Through Closing
Once your documents are organized, you submit the package through the lender’s online portal or in person. The lender orders appraisals on both properties to confirm the loan-to-value ratios. Underwriting follows and usually takes one to two weeks as the lender verifies income, assets, existing debts, and property titles.
After final approval, you move into closing. You’ll sign loan documents at a title company office or in front of a notary, spelling out repayment terms, interest rate, and the lender’s remedies if you don’t repay on time. Funds are then wired to the escrow account for the new purchase or, in some cases, directly to you to cover immediate costs like the down payment.
As part of closing, the lender records a lien against your current home. That lien stays in place until the bridge loan is fully repaid, typically from the sale proceeds.
Risks Before You Sign
The core risk is simple: your current home might not sell before the loan matures. If it doesn’t, several things can happen, and none are good.
- Default and foreclosure. If you can’t repay by the maturity date, the lender can declare a default and begin foreclosure on the property securing the loan.
- Three payments at once. Until the old home sells, you may be carrying your existing mortgage, the bridge loan payment (unless it’s deferred), and the new mortgage. Even a few extra months of overlap can strain finances.
- Deficiency liability. If the lender forecloses and sells for less than the outstanding balance, you may owe the difference depending on your state’s deficiency judgment laws.
- Market risk. A drop in home values could shrink your equity below what you counted on, leaving you underwater or netting less from the sale than planned.
Extensions are possible if the home doesn’t sell in time, but not guaranteed. The lender must agree, and you may face additional fees or a higher rate for the extended period.
Read the contract for a prepayment penalty before signing. Federal rules exclude bridge loans with terms of twelve months or less from the definition of a “higher-priced mortgage loan,” so the federal restrictions on prepayment penalties that protect borrowers on longer-term higher-priced mortgages don’t apply here.3eCFR. 12 CFR 226.35 – Prohibited Acts or Practices in Connection With Higher-Priced Mortgage Loans Whether your loan carries one depends entirely on what the lender writes into the contract, and some do charge a fee for early payoff.
Cheaper or Slower Alternatives
A bridge loan isn’t the only way to buy before you sell. Three alternatives are worth pricing against it.
Home Equity Line of Credit
A HELOC lets you borrow against your current home’s equity on a revolving basis, like a credit card. Rates recently averaged around 7 to 8 percent, compared to 8 to 12 percent for bridge loans, and you only pay interest on what you draw. Setup takes several weeks, so it works when you can plan ahead rather than react. Repayment stretches over years instead of months.
Contingent Sale Offer
A sale contingency lets you make an offer conditional on selling your current home first, usually within 30 to 90 days. If the home doesn’t sell in time, you walk away without penalty. The cost is zero. The problem is competitiveness: in a hot market, sellers often reject contingent offers or accept them with a kick-out clause, which gives them the right to take a better offer and typically leaves you 24 to 72 hours to drop the contingency or step aside.
Home Equity Loan
Unlike a HELOC, a home equity loan gives you a lump sum at a fixed rate, repaid over a set period. Rates are usually lower than bridge loan rates, and the fixed payment makes budgeting easier. Approval and funding are slower than a bridge loan, and the debt sits alongside your new mortgage until the sale proceeds pay it off.
The right choice comes down to how fast you need to move, how confident you are the current home will sell quickly, and how much financial cushion you have to absorb overlap.