At a glance
- Secured by
- Your current home
- Term
- Short-term
- Repaid
- When your home sells
Educational overview, not a loan offer. Requirements vary by lender and borrower.
Overview
A bridge loan is short-term financing secured by your current home. It can help with the down payment and closing costs on your next home before your current home sells, so you do not have to make an offer that depends on selling first.
The bridge loan is repaid when your current home sells. Some lenders offer programs that combine the two steps, and a home equity line of credit on your current home is another way to bridge the gap.
How a bridge loan works
A bridge loan lets you tap the equity in the home you own now to help buy your next home before the first one sells. It is secured by your current home, either as a second lien behind the existing mortgage or as a new loan that pays off the existing mortgage and adds cash. You use the proceeds toward the down payment and closing costs on the new home, which is financed with its own mortgage.
When your current home sells, the sale proceeds pay off the bridge loan and any remaining first mortgage. Payment structures vary by lender: some require monthly interest payments, while others defer payments until the sale or the maturity date, with the balance due in one lump sum. If the home has not sold by the maturity date, you need an extension, a refinance or another way to repay.
Who a bridge loan can fit
A bridge loan is a timing tool for homeowners with equity and the income to carry an overlap.
It is a risky fit for anyone whose current home may be slow to sell, who has thin savings, or who could not afford both housing costs for several months.
Situations where it comes up:
- Owners with substantial equity who have found their next home and do not want to make an offer contingent on selling.
- Sellers who want to move once, then prepare and list the old home empty.
- Buyers in markets where sellers may prefer offers without a sale contingency.
- Households relocating on a deadline, such as for a new job, who can carry both homes for a while.
What lenders look for in a bridge loan
Bridge loans are lender products, so each lender sets its own rules for credit, equity, loan size and maximum term. Lenders generally look for meaningful equity in the current home, a current valuation, and enough income and reserves to handle the overlap, and some want the current home listed or under contract.
The new mortgage has its own rules. For a conventional loan sold to Fannie Mae, bridge funds are an acceptable source of the down payment only if the bridge loan is not secured by the new home, and the lender must document that you can carry the new home, the current home, the bridge loan and your other debts. Regulation Z exempts short-term bridge loans from its specific ability-to-repay requirements, but that exemption does not remove this review on the new mortgage.
See also
Using bridge money for the down payment
The point of a bridge loan is to turn equity you cannot spend yet into cash for the next purchase. Lenders generally size the bridge loan based on your current home's value and the balance of your existing mortgage, so the cash available depends on how much equity you have and how the lender values the home.
Keep the new mortgage's rules in mind. With a conventional loan sold to Fannie Mae, the bridge loan cannot be cross-collateralized against the new home. Other programs set their own rules for borrowed funds, and some lenders structure bridge loans across both properties, which affects which mortgage options you can pair with them. Your loan officer can confirm how a given bridge structure fits the loan you need.
Debt-to-income: counting both homes
Debt-to-income ratio is where bridge plans often succeed or stall. Fannie Mae requires the lender to count the full housing payment on your current home and the new one, plus the bridge loan as a debt, unless you provide a signed sales contract on the current home and confirm the buyer's financing contingencies have cleared. Until then, you need enough income to qualify with everything counted.
Other programs and lenders have their own approaches. If you plan to keep the old home as a rental instead, Fannie Mae's departing-residence rules apply: rent is estimated from an appraisal or market data rather than a lease, can only offset that home's own payment, and may require extra reserves if you have not managed rental property before.
What a bridge loan can offer a buy-before-you-sell move
Used carefully, a bridge loan takes the timing problem out of a move.
- You can make an offer without a home-sale contingency, which some sellers prefer.
- You move once: buy, move in, then sell the old home vacant and staged.
- Equity in your current home becomes usable before the sale closes.
- Once the old home sells, the bridge loan is paid off and you are left with one mortgage.
- It can be paired with conventional financing on the new home when the structure meets agency rules.
Cost, repayment timing and other bridge loan risks
Bridge loans trade convenience for cost and risk. Expect origination or administration fees, an appraisal and title costs on the current home, and pricing that is usually higher than on a standard mortgage. Many come due in a lump sum, and extensions can add fees.
The bigger risk is time. Until the old home sells, you may be paying two mortgages, the bridge loan, and the taxes, insurance and utilities on both homes. If the market slows or you have to cut the price, the sale may net less than planned, and the bridge loan still has to be repaid. A home that will not sell can put both properties under financial strain.
Talk it through with Ruben
Compared with other ways to tap your current home
Each of these tools can supply cash from your current home; they differ in structure and in how they affect qualifying for the new mortgage. The table compares features, not cost.
A HELOC or closed-end second is generally paid off when the home sells, much like a bridge loan, while a cash-out refinance replaces your first mortgage with a larger one, which suits a plan where you might keep the home longer.
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| Feature | Bridge loan | HELOC | Cash-out refinance | Closed-end second |
|---|---|---|---|---|
| Secured by | Current home | Current home | Current home | Current home |
| How funds arrive | Lump sum | Draw as needed | Lump sum | Lump sum |
| Designed for | Short-term gap | Flexible access | Long-term borrowing | Fixed lump sum |
| Replaces the current first mortgage | Sometimes | No | Yes | No |
| Payments while open | Varies; may be deferred | Varies by plan | Regular payments | Regular payments |
| Federal ability-to-repay rule | Exempt when short-term | Separate line-of-credit rules | Applies | Applies |
Bridge scenarios: moving across town, a pending sale, a rental
These situations show how a bridge plan, or an alternative, can play out.
- Owners moving across town who have found the right house but cannot win it with a sale contingency. A bridge loan funds the down payment, and they list the old home after moving.
- A couple whose current home is already under contract with the buyer's financing contingencies cleared. Under Fannie Mae's rules, the lender can leave the current home's payment out of their ratio, which may make the purchase work.
- A family that decides to keep the old home as a rental. They compare a cash-out refinance with qualifying under the departing-residence rules instead of using a bridge loan.
- A buyer relocating for work who cannot carry two payments for long and chooses a HELOC opened before listing, planning to pay it off at the sale.
Timeline from application to repayment
A bridge plan goes more smoothly when the timeline is mapped before you write an offer.
Ask what happens if the sale falls through, how extensions work and whether the lender charges for them.
Typical steps:
- Talk with your loan officer before you shop, so the new mortgage is underwritten with the bridge plan in mind.
- Get a valuation of your current home and a payoff statement for its mortgage.
- Compare bridge terms: fees, payment structure, maturity date, extension options and prepayment terms.
- Coordinate the bridge closing with the new purchase so the funds are available on time.
- List and sell the old home; the bridge loan is paid from the sale proceeds at that closing.
Bridge loan myths about two homes and repayment timing
A few beliefs about bridge loans lead to unpleasant surprises.
- Myth: A bridge loan means I will not have to qualify for two payments. Reality: Fannie Mae counts both homes and the bridge loan until the sale is firm.
- Myth: Bridge loans and fix-and-flip loans are the same. Reality: Investor bridge loans are business-purpose credit for investment property; a buy-before-you-sell bridge loan is for moving between homes.
- Myth: I can repay it whenever the house sells. Reality: Bridge loans have maturity dates, and extensions are not automatic.
- Myth: The bridge loan can also be secured by the new home. Reality: Not if the new mortgage will be sold to Fannie Mae.
- Myth: A HELOC is always simpler. Reality: A HELOC needs its own approval and is usually due when you sell, so timing still matters.
Common questions
13 questions
Is a bridge loan the same as a fix-and-flip loan?
No. A buy-before-you-sell bridge loan is for homeowners moving from one home to the next. Investor bridge loans are business-purpose loans for investment properties.
Can I use a bridge loan for the down payment on my next home?
Yes, with conditions. For a conventional loan sold to Fannie Mae, bridge loan money is an acceptable source of funds as long as the bridge loan is not secured by the new home, and the lender must confirm you can carry the payments on the new home, your current home and the bridge loan together. Your loan officer can check how other programs treat it.
Will the lender count both housing payments when I apply?
Usually yes, until your current home is under contract. For conventional loans sold to Fannie Mae, the lender counts the payments on both homes, and on the bridge loan, unless you have a signed sales contract on your current home and the buyer's financing contingencies have cleared. Other programs have their own rules, so ask your loan officer early.
What if my current home takes longer to sell than planned?
You keep paying your current home, your new mortgage and any bridge loan payments until it sells, which is why lenders check that you can carry all of them. A bridge loan also comes due on a set date, so ask how extensions work and what happens if the home has not sold by then.
How is a bridge loan different from a home equity line of credit?
A HELOC is a line of credit you can draw on and repay as you go, and it usually must be paid off when you sell the home that secures it. A bridge loan is a short-term loan designed from the start to be repaid from the sale of your current home. Either can supply cash for your next purchase. Not every lender offers bridge loans, so ask your loan officer which options the lender offers, what each costs and how each affects qualifying for the new loan.
What decides how much a bridge loan can provide?
The lender looks mainly at your current home's value and what you still owe on it, and limits the combined total of the existing mortgage and the bridge loan to a share of that value. Some lenders also consider the new home's price, your income or your reserves. The limits are set by each lender, and not every lender offers bridge loans, so ask your loan officer whether one is available and what it would allow for your equity.
Does the federal ability-to-repay rule apply to bridge loans?
Not to short-term ones. Regulation Z exempts temporary or bridge loans with short terms, such as one used to buy a new home while you sell the old one, from its specific ability-to-repay requirements. Lenders still review your finances, and the mortgage on the new home remains covered. For a conventional loan sold to Fannie Mae, the lender must also document that you can carry both homes and the bridge loan.
Do I make monthly payments on a bridge loan?
It depends on how the loan is set up. Some bridge loans require monthly interest payments, some add interest to the balance or defer payments until the sale, and many are repaid in a lump sum when the home sells or the term ends. Even when payments are deferred, Fannie Mae treats the bridge loan as a debt in qualifying for the new mortgage, until the sale is firm.
What does a bridge loan cost?
Expect some combination of an origination or administration fee, an appraisal or other valuation of your current home, title and recording charges, and interest that is usually higher than on a standard mortgage. Extension fees may apply if the home takes longer to sell. Ask for a written estimate and compare it with a HELOC or cash-out refinance on the same home, including how each affects qualifying for your new mortgage.
Can I rent out my current home instead of selling it?
Yes, but then you are keeping a rental rather than bridging to a sale. Fannie Mae's rules for a departing residence estimate rent from an appraisal or market data rather than a lease, let that rent offset only the old home's payment, and require extra reserves if you have less than a year of property management experience. A cash-out refinance on the old home before you buy is one way to raise cash in that plan.
Can a bridge loan be secured by both homes?
Some lenders structure bridge loans that way, but it limits your options for the new mortgage. For a conventional loan sold to Fannie Mae, bridge funds cannot be cross-collateralized against the new home. If a bridge offer involves a lien on the property you are buying, ask your loan officer how it fits the program you need before you agree to it.
What are the alternatives to a bridge loan?
Common options include a HELOC or home equity loan on your current home, a cash-out refinance, borrowing against retirement or investment accounts where plan rules allow, gift funds, or an offer contingent on your sale. Some companies also offer buy-before-you-sell programs with their own terms. Each one affects qualifying differently, so compare them with your loan officer before choosing.
Will the lender need to appraise my current home?
Usually, yes. Because the bridge loan is secured by your current home, the lender needs a current value, through an appraisal or another valuation method it accepts, along with a payoff statement for your existing mortgage. That value drives how much the bridge loan can provide. A realistic listing price, supported by recent nearby sales, also helps you plan the sale that repays the loan.
This page explains how this type of loan generally works. Programs, guidelines and availability vary by lender and change often. Contact Ruben to see which options are available for your scenario today.