Bridge Loan

Yes. Just like a traditional mortgage, you should expect to pay closing costs, which often range from 1% to 3% of the loan amount. These fees cover items like appraisals, title insurance, origination fees, and administrative charges. Be sure to get a full estimate from your lender upfront so you aren’t surprised at the closing table.

It can be difficult. While bridge lenders focus more on the equity in your home than your DTI ratio, they still need to be confident in your ability to make the interest payments during the overlap period. If your income cannot support the combined debt of two homes plus the bridge loan interest, you may struggle to qualify.

Bridge loans are short-term financing products. Most have a term ranging from 6 to 12 months. They are not meant to be held long-term, and lenders will generally require full repayment as soon as the transition is complete—typically when your old home sells.

If a bridge loan feels too risky or expensive, consider:

• HELOC (Home Equity Line of Credit): A revolving line of credit secured by your home that often carries lower rates than a bridge loan.

• Home Equity Loan: A lump-sum loan against your home’s equity, often with fixed interest rates.

• Contingent Offer: You can make your purchase offer conditional on the sale of your current home, though this may make you less competitive in hot markets.

• Temporary Housing: Selling first and living in a rental gives you certainty, though it may require two moves.

• Higher costs: Bridge loans typically carry higher interest rates, origination fees, and closing costs than conventional long-term financing.

• Added risk: If your current home fails to sell quickly, you could be left juggling multiple mortgage payments, which can place extreme pressure on your budget.

• Collateral requirements: Because the loan is secured by your property, you risk foreclosure if you default.

• Eliminate contingencies: You can make an offer on a new home without making it contingent on selling your current one, which makes you a more competitive buyer.

• Convenience: You can move into your new home before selling your old one, avoiding the hassle of temporary housing or moving twice.

• Access to equity: It unlocks the cash trapped in your current home, allowing you to use it for a down payment immediately.

The most important factor is your exit strategy. Ask yourself: How confident am I that my current home will sell within the loan’s term (typically 6–12 months)? You must also consider whether you can comfortably afford to carry the payments on your old mortgage, your new mortgage, and the bridge loan simultaneously should the sale of your current home take longer than expected.

While requirements vary by lender, most bridge loans are not as strictly regulated by credit score metrics as traditional mortgages. Instead, lenders focus heavily on:

• Equity: You typically need at least 20% equity in your current property.

• Exit Strategy: You must provide a clear plan for how you will repay the loan, usually involving a firm sale agreement or a plan to refinance.

• Appraisals: Lenders will require professional appraisals of both properties to confirm their market value.

The process is straightforward in concept: you borrow against the equity you have already built in your current residence to fund the purchase of your next home. Once your current home sells, you use the proceeds from that sale to pay off the bridge loan in full, along with any accrued interest and fees.

A bridge loan is a short-term, temporary loan designed to help you “bridge” the financial gap between buying a new property and selling your existing one. It provides immediate capital—often using the equity in your current home as collateral—so you can make a down payment on a new home without waiting for your current one to sell.