What Is a Bridge Loan? How It Helps You Buy Before You Sell
What’s a Bridge Loan in Real Estate?
If you're buying a new home while still owning your current one, a bridge loan might be a great option. I often work with clients here in Minnesota who need to tap into their current home’s equity to help cover the down payment on their next home. A bridge loan is a short-term loan that helps you “bridge” the financial gap between buying a new home and selling your existing one.
It can be especially helpful in a competitive market because it allows you to make an offer on a new home without making it contingent on selling your current one.
How Does a Bridge Loan Work?
Here’s how the process typically goes:
• Let’s talk: I’ll help you explore whether a bridge loan is the right fit for your situation.
• Apply: Once you’re ready to move forward, we’ll start the application. You’ll provide info about the new home, your income, assets, and debts.
• Appraisal: We’ll order an appraisal on your current home to determine its value and available equity.
• Close: You’ll close on the bridge loan and your new home at the same time. The bridge loan funds can be used for your down payment and closing costs.
• Repay: You’ll repay the bridge loan once your current home sells—typically within six months.
Why Use a Bridge Loan?
Here are a few common reasons my clients choose this option:
• Timing: Found the perfect home but haven’t sold yours yet? A bridge loan lets you move forward without delay.
• Down Payment: If your down payment is tied up in your current home’s equity, a bridge loan gives you access to those funds now.
• Competitive Offers: In a hot market, being able to make a non-contingent offer can give you a serious edge.
Common Terms You Might Hear
• Interim Loan: Another name for a bridge loan—it’s temporary financing.
• Gap Financing: Because it fills the gap between buying and selling.
• Swing Loan: Just another term for the same thing.
• Short-Term Financing: Bridge loans are meant to be paid off quickly, usually within six months.
• Hard Money Loan: A different type of loan that uses real assets as collateral—not always used for home purchases.
How Much Do You Need for a Down Payment?
That depends on your goals. Whether you’re aiming to put 20% down to avoid PMI or just 5% to get into your new home, I can help you figure out what’s possible based on your equity and financial picture.
What’s a Non-Contingent Offer?
A non-contingent offer means your purchase isn’t dependent on selling your current home. While contingencies offer protection, waiving the home sale contingency can make your offer more attractive to sellers—especially in a low-inventory market. A bridge loan gives you the flexibility to do that.
Pros of a Bridge Loan
• Lets you move without rushing
• Gives you access to your home’s equity for a down payment
• No penalty for paying it off early
Cons of a Bridge Loan
• Higher interest rates and fees
• Risk if your current home doesn’t sell quickly
• You’ll need to refinance or find other financing if your home doesn’t sell within the loan term
If you’re thinking about using a bridge loan for your next move, I’d be happy to walk you through the options and see if it’s the right fit for you. Let’s connect and talk through your goals!
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.