Buying a new home while trying to sell your current one at the same time can be a tricky timeline to navigate, especially in a competitive market. One common dilemma you might face if you find your dream home and don’t want it to slip away is this: Should you make an offer that’s contingent on your sale, or make an offer without the friction of a contingency? The latter may require a funding source to cover the period before you’re able to sell your home. 

While the contingent offer can reduce your financial risk, it can be considered extra “baggage” in a competitive market. That’s when a bridge loan could come into play. It can provide the funding you need upfront to make a contingent-free offer, and then you can pay it off with the proceeds of your future sale. The complication is that bridge loans can be expensive, have a hard deadline, and may not be right for every situation.

Here’s what you need to know about how bridge loans work, what they cost, and when you should think twice.

What is a bridge loan?

A bridge loan, sometimes called a swing loan, is a short-term loan that uses your existing home’s equity to fund the purchase of a new home before your current one sells. In other words, it bridges the gap between the two transactions. It lets you buy now knowing that you can complete repayment when your current home sells.

Residential bridge loans are typically secured by real estate, such as your current home, the home you’re buying, or both. What’s most important when considering a bridge loan is that you understand it has a hard deadline, and missing it can have real financial consequences.

How does a bridge loan work?

Many bridge loans feature interest-only payments during the term and a balloon payoff at maturity, though terms vary by lender. The typical structure is this: You may use the bridge loan to pay off whatever remains on your current mortgage, fund your down payment on the new home, or a combination of both. You carry two properties simultaneously, but only for as long as the bridge loan is live.

Here’s an example: Let’s say you’ve got $110,000 in equity in a home worth $300,000, and you’re buying a new home for $400,000. The bridge loan gives you access to that equity so you can use it for your down payment. Instead of making a contingent offer that sellers may reject in a competitive market, you can use the funds from the bridge loan so you don’t have to wait.

After your lender approves your bridge loan, you may have two closings. First, the bridge loan closes to fund your purchase. Then you’ll do another closing when you buy the home.  Some lenders may structure the transactions as a single simultaneous closing. 

What a bridge loan actually costs

Bridge loans usually cost more than standard first mortgages, and rates and fees vary widely by lender and loan structure. Here’s how the math can look in practice. A hypothetical $100,000 bridge loan at 9% annual interest held for six months carries $4,500 in interest. Add a 2% origination fee, and you’re at $6,500 in borrowing costs before accounting for closing costs on either transaction.

Note that if origination fees are rolled into the loan balance, they can obscure the real cost and raise the amount you’ll owe at payoff. Always ask for the total cost of the loan expressed in dollars, not just the rate.

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Bridge loan vs. HELOC

A home equity line of credit (HELOC) is a revolving line of credit secured by your home’s equity. You draw what you need, pay interest only on what you use, and typically have a longer repayment timeline. The difference is speed versus flexibility. Since it’s specifically designed for the buy-before-you-sell purpose, bridge loans may close faster than a HELOC. HELOCs generally carry lower costs and give you more time to repay.

	Bridge Loan	HELOC
Rate	Typically higher than standard first mortgages; rates vary by lender	Variable; typically tied to prime rate; some lenders offer fixed-rate HELOCs as well
Term	Short-term; balloon payoff at maturity	Often a multiyear draw period, followed by a repayment period that may run several years, depending on the lender
Closing costs	May be higher; lender fees add to upfront cost	May be lower; costs vary by lender and loan terms
Approval speed	May close faster than a HELOC, depending on lender	Typically slower to set up
Best for	Buyers in competitive markets who need to move immediately	Buyers with more time who want flexible access to their equity
Risk if repayment is delayed	Because the loan is secured by real estate, default can put the collateral property at risk	Because your home secures the HELOC, default can put the property at risk

Rate
Bridge Loan	Typically higher than standard first mortgages; rates vary by lender
HELOC	Variable; typically tied to prime rate; some lenders offer fixed-rate HELOCs as well
Term
Bridge Loan	Short-term; balloon payoff at maturity
HELOC	Often a multiyear draw period, followed by a repayment period that may run several years, depending on the lender
Closing costs
Bridge Loan	May be higher; lender fees add to upfront cost
HELOC	May be lower; costs vary by lender and loan terms
Approval speed
Bridge Loan	May close faster than a HELOC, depending on lender
HELOC	Typically slower to set up
Best for
Bridge Loan	Buyers in competitive markets who need to move immediately
HELOC	Buyers with more time who want flexible access to their equity
Risk if repayment is delayed
Bridge Loan	Because the loan is secured by real estate, default can put the collateral property at risk
HELOC	Because your home secures the HELOC, default can put the property at risk

If you’re not in a competitive market and your timeline is flexible, a HELOC may be a lower-cost path. If you need to move fast and your home has strong equity, a bridge loan can be a good option.

When a bridge loan makes sense and when it doesn’t

A bridge loan may be right for you if:

• You’ve found the right home and you’re in a competitive market where sellers may be less likely to accept a home-sale contingency 
• Your current home is well-priced with a realistic shot at selling within the loan term
• A job relocation compresses your timeline and carrying the cost of a bridge loan is preferable to selling your home in a rush

A bridge loan might not be the best choice if:

• Your current home has been sitting without serious offers
• Carrying both housing obligations if your home doesn’t sell before the bridge loan matures would cause financial distress
• Your equity is thin and may not meet qualification standards 
• Your credit is not strong or you don’t have the capacity to carry both housing obligations during the transition

Bridge loan pros and cons

How to qualify for a bridge loan

Bridge loan qualification criteria vary by lender, but bridge loan providers generally look for strong credit, substantial equity in your existing home, and enough income to support both housing obligations during the transition. 

In addition to your credit score, your debt-to-income ratio (DTI) matters too. Your lender may include both your current and new mortgage payments when calculating your DTI, though requirements vary.

Bridge loans can be more difficult to qualify for than a standard mortgage because you may need to show you can handle multiple housing obligations at once. If your financials are already tight, a bridge loan may be challenging to get.

Who offers bridge loans?

Not every major bank offers bridge loans since they’re a specialized product. You may find that local banks, credit unions, and specialty lenders are more likely than large national banks to offer them.

When you’re shopping around, make sure you’re working with a reputable lender that routinely closes these types of loans. Compare more than the interest rate, too. Ask about origination fees, closing costs, repayment terms, and what happens if your current home doesn’t sell before the loan matures.

The takeaway

A bridge loan can help you secure your dream home, but it’s a tool with a hard deadline and a real cost. If your home is well-priced in a moving market, you have strong equity, and you can carry both housing obligations for the duration of the loan term, a bridge loan can be a good path to buying without a contingency offer. 

But if your equity is thin or you might not meet the stricter qualifications that often come with bridge loans, a HELOC or home equity loan may be another option to consider. You could also consider a cash-out refinance if you have time to refinance before buying.

Work with your real estate and mortgage teams to make sure you have a full understanding of all options so you can make the best homebuying decision for your situation.

Frequently asked questions

Is a bridge loan a good idea?

A bridge loan can be a helpful tool to bridge the funding gap for homebuyers who want to make an offer on a new home without it being contingent on selling their current home. Because these loans often have stringent qualifications, come with significant borrowing costs, and have short repayment terms, they may not be a good fit for all buyers.

What credit score do you need to qualify for a bridge loan?

Bridge loans typically require slightly higher credit scores than other home loan programs, but lender criteria vary. Many lenders look for a credit score of at least 700, though some may require higher scores.

Do all lenders have bridge loans?

A bridge loan is a specialty product that is not offered by all major banks. Instead, you may have to look to niche lenders, local banks, or credit unions to find a lender that specializes in this type of loan.

How long do you have to pay off a bridge loan?

Bridge loan terms vary by lender, but they typically run from three to 12 months.

What happens if your house doesn’t sell before the bridge loan matures?

Because bridge loans are secured by real estate, failing to repay the loan can put the collateral property at risk of foreclosure under the loan terms.