How to Use a Bridge Loan for a Home Purchase
Buying and selling a home rarely line up neatly. You may find yourself ready to buy your next home before your current one has sold, or you might need access to the equity tied up in your existing property to move forward.
In these situations, you might consider a bridge loan. It’s a financing option that can help address that timing and cash-flow gap, but it also comes with important trade-offs to understand before deciding if it fits your situation.
In short: A bridge loan helps you use your current home equity to buy your next home before your current home sells.
This guide breaks down how bridge loans work in practice, what to expect, and how they compare to other ways of using home equity when buying your next home.
What is a bridge loan in real estate?
A bridge loan is a short-term loan that helps homeowners bridge the timing gap between buying a new home and selling their current one.
It’s designed to solve a common challenge many homeowners face: Much of their money is tied up in their current home’s equity. A bridge loan lets you access some of that value before the property is sold to help cover the down payment on your next home, but it also means taking on short-term debt before your current home sale is complete.
Bridge loans are typically secured by your current home, so the amount you can borrow depends largely on how much equity you’ve built up. Strong credit and stable income are also important factors in qualifying.
How does a bridge loan work when buying a home?
Bridge loan structures and qualification requirements can vary by lender, but in most cases, the process works roughly the same way:
Apply for a bridge loan A lender evaluates your current home’s value, your remaining mortgage balance, how much equity you’ve built up, and factors like your credit, income, and overall finances.
Access your home equity Once approved, you receive funds you can use toward buying your next home.
Buy your next home You can use the bridge loan funds toward your down payment or other home-buying costs, allowing you to move forward before your current home is sold.
Sell your current home and repay the loan Once your original home sells, you use the proceeds to pay off the bridge loan.
Some bridge loans function as a second loan alongside your existing mortgage, while others temporarily replace your existing mortgage with a single larger loan. Either way, they can give you more flexibility by helping you buy a new home before selling your current one. That flexibility can also help you avoid a sale contingency, which may make your offer more competitive.
Bridge loan terms, rates, and costs: What to expect
If you’re considering a bridge loan, there are a few common characteristics and costs you should understand before applying. Terms can vary based on the lender, the borrower’s financial profile, and the structure of the loan itself.
Qualification requirements
You generally need strong credit, stable income, and enough equity in your current home to qualify. Many lenders prefer homeowners to have at least 20% equity in their property, along with a manageable debt-to-income ratio (DTI).
Duration
Bridge loans are designed to be temporary financing solutions. Most are intended to be repaid within six months to a year, though some lenders may offer longer terms.
Interest rates
Interest rates on bridge loans are typically higher than those on traditional mortgages because the loans are short-term and carry more risk for lenders. Depending on the market and borrower profile, rates may be several percentage points above conventional mortgage rates.
Closing costs and fees
Closing costs can also be more expensive than borrowers expect. Fees may range from roughly 1.5% to 3% of the loan amount and can include expenses like appraisals, origination fees, escrow costs, and underwriting fees.
Payment structure
Some bridge loans require monthly payments during the loan term, while others defer payments until your current home is sold and the loan is repaid.
Borrowing limits
Many lenders allow homeowners to borrow up to around 80% of their home’s value, minus the remaining balance on their current mortgage.
Bridge loan example
A simple example of how a bridge loan might work in practice:
Let’s say your current home is worth $600,000, and you still owe $250,000 on your mortgage. A lender may allow you to borrow up to 80% of your home’s value, less the remaining balance on your mortgage. So you could potentially access up to $230,000 through a bridge loan.
Here’s the breakdown:
Current home value: $600,000
80% of home value: $480,000
Remaining mortgage balance: $250,000
Potential bridge loan amount: $230,000
It’s important to remember that bridge loans also come with closing costs and interest. For example, if closing costs equal 2% of a $230,000 bridge loan, that would add another $4,600 to the total cost of the loan. Interest charges can add thousands more depending on the loan amount, interest rate, and duration of the loan.
If the home later sells for $600,000, the sale proceeds would typically be used to pay off the remaining mortgage balance, repay the bridge loan, and cover any interest, fees, and closing costs. Any remaining proceeds would go to the seller.
Are bridge loans a good idea?
A bridge loan can ease your home transition, but it’s not always the most cost-effective or low-stress option. Whether it makes sense for you depends on your timing, budget, and comfort with taking on short-term debt alongside your existing mortgage. Before moving forward, it’s important to understand both the advantages and potential drawbacks.
Pros
Faster approval process Compared to traditional mortgages, bridge loans can often move through underwriting more quickly because they’re designed for shorter-term financing needs. That speed can help when you need to move on a home quickly.
No prepayment penalties In many cases, bridge loans don’t charge prepayment penalties, meaning you can pay the loan off early once your home sells.
More flexibility during your move A bridge loan can give you more control over timing, allowing you to buy, move, and sell on a schedule that works better for your situation.
Stronger offers By reducing the need for a sale contingency, bridge loans may help make your offer more attractive to sellers, especially in competitive markets.
Cons
Higher borrowing costs Because they’re short-term loans that carry more risk for lenders, bridge loans often come with higher interest rates and fees than traditional mortgages.
Overlapping payments Depending on the structure of the loan, you may temporarily need to manage both your existing mortgage and the bridge loan at the same time.
Short repayment timeline Most bridge loans are designed to be repaid within six to 12 months, which can create pressure to sell your current home within that timeframe.
Risk if your home takes longer to sell If your home doesn’t sell as quickly as expected, you may need to extend the loan, refinance, or adjust your repayment strategy. That can add both cost and complexity to the process.
A bridge loan may make sense if:
You have significant equity in your current home.
You need to buy before selling.
You are confident your current home can sell within the loan term.
You can afford the costs, interest, and potential overlapping payments.
A bridge loan may be riskier if:
Your current home may take longer to sell.
You are already stretching your monthly budget.
You do not have a clear repayment plan.
You are relying on an optimistic sale price to make the numbers work.
Bridge loan vs. HELOC vs. home equity loan
Bridge loans aren’t the only way homeowners can tap into their equity before selling. Depending on your finances, timeline, and borrowing needs, a HELOC or home equity loan may also be worth considering.
A home equity line of credit (HELOC) works more like a credit card secured by your home. Instead of receiving all the money upfront, you can borrow what you need when you need it, up to an approved amount.
A home equity loan, on the other hand, provides a lump sum upfront that’s repaid over time with fixed monthly payments.
While all three options use your home equity as collateral, they differ in how funds are distributed, how repayment works, and how they’re typically used during the home-buying process:
How Flyhomes upgrades the traditional bridge loan
Traditional bridge loans are generally underwritten based on a borrower’s current financial picture. This includes their existing mortgage, current debt obligations, and available cash on hand. In many cases, borrowers may also need to manage overlapping mortgage or loan payments while transitioning between homes.
Flyhomes’ Buy Before You Sell solutions take a different approach by factoring in the expected sale of the current home as part of the transaction. In some cases, that may help homeowners qualify for their next purchase with more flexibility than they might get through traditional underwriting alone.
Depending on the solution, eligible buyers may be able to:
Reduce the impact of their current mortgage on debt-to-income calculations
Unlock equity before selling their current home
Avoid overlapping monthly payments during the transition period
Make non-contingent or cash-like offers in competitive markets
Some Flyhomes bridge loan solutions also defer monthly payments while the homeowner prepares to sell their previous property, with repayment occurring after the home sells. This approach can be especially helpful for downsizers or retirees whose wealth is largely tied up in home equity rather than monthly income.
FAQsWhat is a short-term bridge loan?
A short-term bridge loan is temporary financing that helps homeowners buy a new home before selling their current one. Most are designed to be repaid within 6–12 months, typically using proceeds from the sale of the borrower’s existing home.
How do you qualify for a bridge mortgage loan?
Each lender may have different requirements, but borrowers typically need strong credit, stable income, a manageable debt-to-income ratio (DTI), and at least 20% equity in their current home.
Are there monthly payments on a bridge loan?
It depends on the lender and loan type. Some bridge loans require monthly interest payments during the loan term. Others, including some Flyhomes Buy Before You Sell solutions, defer payments until the home sells and the loan is repaid.
Can you get a bridge loan for a new construction home?
Yes, in some cases. New construction homes often have fixed build schedules or strict closing timelines, so buyers may use short-term financing to help meet a builder’s requirements.
How fast can a bridge loan close?
Bridge loans can often close faster than traditional mortgage transactions, sometimes in as little as 7–14 days, depending on the lender and the transaction. Faster timelines are more likely when the borrower has strong equity, solid credit, and complete documentation.
Does a bridge loan affect my DTI?
Yes. Depending on how the loan is structured, a bridge loan may increase your debt-to-income ratio because lenders could count both your current mortgage and the bridge loan payment when evaluating your finances.
What happens if my house doesn’t sell before the bridge loan ends?
You may need to extend the loan, refinance into another type of financing, or repay the balance using other funds. Because terms vary by lender, repayment timing and requirements should be reviewed carefully before borrowing.
Considering a bridge loan for your next home? Flyhomes can help you explore your options and move forward with confidence.
