Bridge Loan
A bridge loan helps buyers purchase a new home before selling the old one. Learn about this short-term financing option’s benefits and risks.
Definition
A bridge loan, sometimes called a swing loan or interim financing, is a short‑term loan used to ‘bridge’ the gap between buying a new property and selling an existing one. Borrowers use bridge loan proceeds to fund the down payment or purchase of a new home while awaiting the sale of their current property. Bridge loans typically carry higher interest rates and fees than conventional mortgages and are secured by the borrower’s existing home. Because they must be repaid quickly, bridge loans are best suited for borrowers with strong credit who are confident their existing home will sell in the near term.
Why It Matters
A bridge loan lets you write an offer with no home sale contingency, which in a tight market is often the difference between winning a house and losing it. You pay for that with rates commonly 2 to 4 points above a conventional mortgage, origination of 1% to 2%, and the obligation to carry two properties at once. If the old house takes six months instead of six weeks, the carrying cost eats the equity you were trying to move.
Examples
A Redmond seller borrows $250,000 against her current home at 10.5% interest-only to close on a new build. The old house sells in 34 days, and total interest runs about $2,450.
A buyer bridges $400,000 expecting a 45-day sale. Two inspection-driven cancellations stretch it to five months, costing him roughly $17,000 in interest plus a 1.5% origination fee.
A lender caps the bridge at 80% combined loan to value on the departing residence, limiting the draw to $180,000 and forcing a smaller down payment on the new home.
Tips
List your current home, and ideally get it under contract, before drawing the bridge. Lenders size and price these loans on the departing residence, and a pending sale improves both.
Ask what happens at maturity if the old house has not sold: extension fee, default rate, or a call. That clause matters more than the quoted interest rate.
Compare against a HELOC opened before you list. HELOCs are much cheaper, but most lenders will not open one on a property already on the market, so the order of operations decides whether it is available.
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