Bridge Loans Explained: How to Buy Before You Sell

You found your dream home, but you have not sold your current one yet. The timing gap between buying and selling is one of the most stressful scenarios in real estate. Bridge loans exist to solve this exact problem, but they come with costs and risks you need to understand before committing.

What Is a Bridge Loan?

A bridge loan is short-term financing that lets you access the equity in your current home to make a down payment on a new one. It "bridges" the gap between purchasing your new home and selling your existing one.

Bridge loans typically last 6 to 12 months. The expectation is that you sell your current home within that window and use the proceeds to pay off the bridge loan. If you do not sell in time, you have a problem.

How Bridge Loans Work

There are two common structures:

Structure 1: Bridge loan covers the down payment. You keep your existing mortgage and take a bridge loan against your current home's equity. You use the bridge loan funds for the down payment and closing costs on the new home. You are now carrying three payments: your existing mortgage, the bridge loan, and the new mortgage. Once you sell, the proceeds pay off your old mortgage and the bridge loan.

Structure 2: Bridge loan replaces the existing mortgage. The bridge loan pays off your current mortgage and provides additional funds for the new purchase. This means you carry two payments instead of three: the bridge loan and the new mortgage. The bridge loan is larger but the total monthly obligation may be more manageable.

Loan amounts are typically based on 80% of your current home's value minus your existing mortgage balance. If your home is worth $500,000 and you owe $250,000, a bridge loan could provide up to $150,000 ($500,000 x 80% - $250,000).

Costs and Terms

Bridge loans are expensive relative to traditional mortgages. Expect:

Interest rates: 8.5% to 12%, sometimes higher. These rates reflect the short-term, higher-risk nature of the loan.
Origination fees: 1.5% to 3% of the loan amount. On a $150,000 bridge loan, that is $2,250 to $4,500.
Closing costs: Appraisal, title, and administrative fees, typically $1,500 to $5,000.
Payment structure: Some require monthly interest payments. Others allow deferred payments where interest accrues and is paid at payoff. A few are interest-only with a balloon payment at the end.

Total cost for a six-month bridge loan of $150,000 at 10% interest: roughly $10,000 to $12,000 including fees and interest. That is a significant but potentially worthwhile cost if it lets you secure the right home.

Qualification Requirements

Bridge loan lenders evaluate:

Equity in your current home: You generally need at least 20% equity.
Ability to carry multiple payments: The lender may require you to qualify for your existing mortgage, the bridge loan, and the new mortgage simultaneously.
Credit score: Most require 680 or higher, with 700+ for better terms.
Likelihood of selling: Some lenders want to see that your home is listed or about to be listed. Market conditions in your area matter.

Alternatives to Bridge Loans

Before committing to a bridge loan, consider these alternatives:

Home sale contingency. Make your offer on the new home contingent on selling your current one. This eliminates the need for bridge financing entirely. The downside: in competitive markets, sellers often reject contingent offers in favor of non-contingent ones.

HELOC. If you already have a home equity line of credit, draw from it for the down payment. HELOCs typically have lower rates than bridge loans, and you may already be approved. The catch: opening a new HELOC takes several weeks, so this requires advance planning.

80-10-10 piggyback loan. Put 10% down on the new home from savings, take a second mortgage (home equity loan) for another 10%, and get a primary mortgage for 80%. This avoids PMI and gives you time to sell without a bridge loan.

Sell first, rent temporarily. Sell your current home, move into a short-term rental, and then buy. This is the safest financial option but the most disruptive logistically. Moving twice is no one's idea of fun.

Negotiate a rent-back agreement. Sell your current home but negotiate to rent it back from the buyer for 30 to 60 days while you close on the new place. Not all buyers agree to this, but it is common enough to be worth trying.

Risks to Consider

The biggest risk: your current home does not sell within the bridge loan term. If the market softens or your home sits unsold, you are stuck with expensive short-term debt that may come due without a clear payoff source. Some lenders offer extensions, but at additional cost.

Other risks:

Carrying three payments strains your cash flow and limits your financial flexibility.
If your home sells for less than expected, you may not fully pay off the bridge loan from the proceeds.
Stress. Managing two real estate transactions simultaneously while carrying multiple loans is genuinely stressful. Do not underestimate this.

When a Bridge Loan Makes Sense

Bridge loans work best when:

You have significant equity in your current home.
Your current home is in a strong market and likely to sell quickly.
The new home is a compelling opportunity you do not want to lose.
You can comfortably afford the combined payments for several months.
The cost of the bridge loan is justified by the value of securing the new property.

SOMA can help you model the financial impact of a bridge loan versus alternatives, so you can make an informed decision about timing your buy and sell.

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