What a bridge loan is and when it is used
A bridge loan is a short-term loan designed to close a timing gap between buying one property and selling another. In the most common version, you borrow against the equity you already have in your current home, use the proceeds toward the down payment or purchase of your next home, and repay the bridge loan when your old home sells. Because the loan is temporary, lenders generally charge a higher rate than they would on a standard first mortgage, and they expect repayment within months rather than decades.
The name describes its function: it bridges you from one financing situation to another. You may also hear it called a swing loan, a bridging loan, or a gap loan. A bridge loan is not a separate category of consumer credit, but because it is secured by real estate, the disclosure rules that apply to mortgages generally apply here as well. The Consumer Financial Protection Bureau mortgage tools are a reasonable starting point for understanding what a lender must tell you before you sign.
How bridge loans are structured
Bridge financing comes in a few shapes, and the shape determines what you owe and what the lender can take if things go wrong.
- Equity bridge loan. The lender places a lien on your current home, usually behind any existing first mortgage, and advances you a portion of your available equity. You keep paying your original mortgage while you also pay the bridge loan. Some lenders structure this as interest-only, with the full principal due when the property sells.
- Bridge-to-permanent loan. Here the lender commits to both the short-term bridge and the long-term mortgage on the new home. The bridge portion is repaid at the sale of your old home, and the permanent loan takes over on the new property. This can simplify the process because you work with one underwriter, but you are still bound by the terms of both sets of documents.
- Purchase-side bridge. Less common, this secures the loan against the home you are buying rather than the one you are selling.
Each structure carries different risks. When the loan is secured by the home you are trying to sell, a delay in that sale directly threatens your ability to repay.
How repayment works
Bridge loans are built around an event, not a long amortization schedule. Repayment is typically tied to the sale of the property you already own, and the loan documents state a maturity date by which the entire balance must be paid. Many bridge loans require interest-only payments during the term, with the principal due as a single balloon payment at the end. Our guide to balloon loans explains why that structure puts the weight on your exit plan rather than on steady principal reduction.
The typical sequence looks like this:
- You apply, and the lender arranges an appraisal or valuation of your current home to measure available equity.
- Underwriting reviews your credit, income, existing mortgage balance, and the expected proceeds from your sale.
- You close on the bridge loan, often before or alongside the purchase of the new home.
- You carry the original mortgage and the bridge loan while the old home is listed.
- When the old home closes, the proceeds pay off the bridge loan, the existing mortgage, and associated costs.
If the sale stalls, you remain responsible for the payments, and the maturity date does not move on its own. Lenders may grant an extension, but they are not required to, and an extension usually carries additional fees.
What a bridge loan costs
Bridge loans tend to be more expensive than conventional first mortgages, and the reason is structural rather than arbitrary: the lender is making a short-term, higher-risk loan with an uncertain payoff date. Costs commonly include an origination or loan fee, an appraisal, title work, and closing costs, plus interest that accrues while you wait for your buyer.
Because a bridge loan is secured by real estate, the Truth in Lending Act and its implementing rule, Regulation Z, generally require the lender to disclose the annual percentage rate and the finance charge before you become obligated. The APR folds in certain fees, which makes it a more useful comparison point than the interest rate alone. The CFPB's Ask CFPB answers explain how the APR is calculated and what lenders must disclose.
One cost borrowers underestimate is the overlap period. While both homes are on your balance sheet, you may be paying the original mortgage, interest on the bridge loan, and eventually the new mortgage once it funds. Budget for a longer timeline than you expect. The home equity loan calculator can show how different balances and terms change the payment.
Who tends to qualify
Bridge lenders underwrite differently from mainstream mortgage lenders, but the fundamentals still apply. The single biggest factor is equity in the property you already own, because the lender needs enough cushion to recover its money if the sale falls through at a lower price. Lenders also examine the combined loan-to-value across your existing mortgage and the new bridge loan.
Beyond equity, expect scrutiny of your credit history, your debt-to-income ratio, and your ability to carry payments on both properties during the bridge period. Documented income and assets matter, and a signed purchase contract on the new home often strengthens the file substantially. If your credit needs attention before you apply, the CFPB's credit reports and scores guide explains what appears in your file and how to dispute errors. Our overview on improving your credit score covers practical steps.
Lenders will also consider how marketable the home you are selling is. An unusual property or a slow market makes a bridge loan riskier and may reduce how much the lender will advance.
Alternatives to a bridge loan
A bridge loan is not the only way to close a timing gap, and it is often not the cheapest. Compare it against the alternatives below.
| Option | How it works | Consider it when |
|---|---|---|
| Bridge loan | Short-term loan secured by your current home, repaid when it sells | You need purchase money quickly and have strong equity |
| HELOC | Revolving line of credit secured by home equity | You want flexibility and can draw only what you need |
| Home equity loan | Lump-sum installment loan secured by home equity | You want a fixed payment schedule without a balloon |
| Cash-out refinance | Replaces your first mortgage with a larger one and pays you the difference | Refinancing your current mortgage makes sense anyway |
| Sale contingency | Your offer to buy depends on selling your current home first | The seller will accept a contingent offer |
A home equity line of credit lets you borrow against your equity on your own schedule, which can help when your purchase timeline is uncertain. Our comparison of a HELOC versus a home equity loan walks through the differences in payment structure and cost, and our guide to home equity loans covers the basics. A cash-out refinance replaces your existing mortgage rather than sitting beside it, which avoids two simultaneous payments but resets your loan term.
Risks and questions to ask before you sign
Bridge loans concentrate risk into a short window. The main hazard is that your current home does not sell before the bridge loan matures, leaving you to cover two properties, an approaching balloon payment, and any extension fees the lender charges. Another is that the sale price comes in below expectations, so the proceeds do not fully cover the payoff.
Before signing, ask the lender in writing: What is the maturity date, and what happens if I miss it? Is the rate fixed or variable? Are there prepayment penalties? Which fees are included in the APR? What happens if my sale price is lower than projected? And is there a cross-collateralization clause linking the bridge loan to my new home? A cross-collateral clause can let the lender foreclose on one property to satisfy a default on the other.
Read the full agreement, not just the summary. Our guide on how to read a loan agreement explains the sections that determine what you actually owe. The CFPB's Owning a Home toolkit helps you compare loan offers on equal terms, and the Department of Housing and Urban Development's home buying resources cover the broader purchase process.