Short Answer
A bridge loan is a short-term loan that helps you buy a new home before selling your current one. It uses the equity in your current home as collateral to provide funds for a down payment on the new home. Bridge loans typically have higher interest rates and shorter terms, usually 6 to 12 months. They are useful when you need to move quickly on a new home but cannot wait for your current home to sell.
A bridge loan solves the timing problem of selling and buying at the same time. When you find your dream home but have not sold your current home yet, a bridge loan can provide the down payment funds needed to close on the new home. The loan is secured by your current home and is repaid when that home sells. Bridge loans have higher interest rates, typically 1% to 3% above current mortgage rates, and shorter terms of 6 to 12 months. There are also origination fees and closing costs. Lenders require substantial equity in your current home, typically at least 20% to 30%, and a demonstrated ability to carry both mortgages if your current home does not sell quickly. The risk is that if your current home does not sell within the loan term, you may need to extend the loan at additional cost or sell at a lower price. Bridge loans can be a smart solution when you have significant equity and need to act quickly, but they carry risk and should be used strategically.
Bob's Advice
Redfin Senior Agent · AI Certified Agent
Bridge loans are a powerful tool for the right situation. I have used them to help buyers secure their dream home when the timing of their sale was uncertain. But they are not for everyone. You need enough equity in your current home and the financial capacity to carry both payments temporarily. If you are thinking about a bridge loan, let us talk through the risks and rewards. I can connect you with lenders who offer bridge financing and help you decide if it is the right move for your situation.
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