Bridge loans
A bridge loan borrows against the home you're selling so you can buy the next one first. It's repaid when the old home sells.
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What is a bridge loan for buying a home before you sell?
A bridge loan borrows against the home you're selling so you can buy the next one first, and it's repaid when the old home sells. Bridge loans are short-term, often 6 to 12 months, and usually interest-only. They cost more than a HELOC, but some programs don't count the current home's payment against you while it's listed.
On this page
Types
- Primary to primary: moving from one home you live in to the next.
- Investment to investment: selling one rental or investment property to buy another, often alongside a 1031 exchange plan.
Use a free calculator, or get your HELOC rate from Shawn.
Is a bridge loan or a HELOC better for buying before you sell?
A HELOC opened before you list is usually cheaper, but most lenders won't open one on a home already for sale, and you must qualify carrying both payments. Some programs do allow it: see a HELOC while your home is listed. A bridge loan is built for the in-between. Using a HELOC for a down payment.
Plan the exit
Price the old home to sell within the bridge term, and know what happens if it doesn't: extension fees, a rate step-up, or refinancing.
These are the situations where shopping more than 180 lenders matters most: one lender's "no" is often another's standard loan. Tell us about your situation.
Example cost
A $400,000 bridge loan at an example 9% interest rate, interest-only, costs about $3,000 a month. If your current home sells in six months, the interest is about $18,000, plus origination fees often around 1%–2%. A HELOC on the same home would usually cost less, if you can open one before listing.
Choosing between them
- HELOC: cheaper, but must be opened before the home is listed, and the new lender usually counts its payment.
- Bridge loan: works after listing, can be larger, and some programs exclude the old home's payment from your ratios.
- Buy-before-you-sell programs: some companies buy your current home if it doesn't sell in time. Cash offer programs.
If the home doesn't sell
Ask before you sign: can the term be extended, at what cost, and what happens at maturity? Price the old home realistically from the start; an unsold home is the main risk of any bridge strategy.
Bridge loan checklist
- A realistic list price and timeline for your current home.
- The equity in your current home after costs.
- Whether the new lender will exclude your current home's payment.
- The bridge loan's fees, rate, term and extension options.
- A fallback plan if the home takes longer to sell.
Example: a bridge loan that excludes the old payment
A buyer's debt ratio with both homes is 58%, too high. A bridge program allows the new lender to ignore the old home's payment because it's listed and the bridge covers the down payment. Her ratio on the new home alone is 39%, and she qualifies.
Also asked
Can a bridge loan cover my whole down payment?
Often, yes. A bridge loan can cover the down payment up to a percentage of your current home's equity, commonly 70% to 80% combined loan-to-value on the departing home.
Do I make payments on a bridge loan?
Usually, though many bridge loans are interest-only, and some defer interest until the old home sells. Ask the lender how interest is handled and whether it's paid from the sale proceeds.
Is a bridge loan available for investment properties?
Yes, bridge loans for investment properties are available, often from private and hard-money lenders, at higher rates and for shorter terms. An investment-to-investment bridge is often paired with a 1031 exchange plan.
How quickly can a bridge loan close?
A bridge loan can often close within two to three weeks, which is faster than many HELOCs. Ask about the term and extension options up front, since the loan is repaid when the old home sells.
Can I get a bridge loan with no equity?
No, you can't get a bridge loan without equity. Bridge loans are secured by the home you're selling, commonly up to 70% to 80% combined loan-to-value on that home.
Can I use a bridge loan when buying a newly built home?
Yes, and it's a common use, since builders often want a firm closing date that doesn't depend on selling your current home. Match the bridge loan's term to the builder's realistic completion date plus time to sell, and ask about extension fees, because construction delays are common.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau