A bridge loan is a short-term financing option designed to help homeowners purchase a new property before selling their current one. It literally "bridges" the financial gap between buying and selling, providing the funds needed for a down payment or even the full purchase price of the new home while the existing home is still on the market. Bridge loans solve a common timing problem: you've found your dream home, but your current home hasn't sold yet, and you need the equity from the sale to fund the new purchase.
Bridge loans are typically secured by the borrower's current home and have terms ranging from 6 months to 1 year. The interest rates are generally higher than traditional mortgages — often 2% to 4% above prime rate — reflecting the short duration and higher risk for the lender. Fees can also be substantial, including origination fees of 1% to 3% of the loan amount, plus closing costs. Despite the higher cost, bridge loans can be worth it when timing is critical in a competitive market.
There are two main structures for bridge loans. In the first, the bridge loan covers only the down payment gap — the borrower obtains a traditional mortgage for the new home and uses the bridge loan just for the down payment. When the old home sells, the bridge loan is repaid from the proceeds. In the second structure, the bridge loan pays off the existing mortgage on the old home AND provides funds for the new purchase, consolidating everything into one short-term loan that is repaid when the old home sells.
Not all lenders offer bridge loans, and qualification requirements can be stringent. Lenders want confidence that the existing home will sell within the loan term. They typically require significant equity in the current home (usually 20% or more), strong credit scores, low debt-to-income ratios, and proof that the current home is market-ready. Some lenders require the current home to already be listed for sale before approving the bridge loan.
At closing on the new property, the bridge loan proceeds are used alongside any other financing. The title company coordinates the funding from multiple sources — the bridge lender, the permanent mortgage lender, and the buyer's own funds. When the old property later sells, those sale proceeds are used to repay the bridge loan through a separate closing. At Beycome Title, we handle both closings seamlessly, ensuring all liens are properly managed across both transactions. Use Beycome's home sale calculator to estimate your net proceeds and plan your bridge financing.