Bridge Loans: How They Work When Buying a New Home

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Buying a new home before selling your current one can feel like juggling on a tightrope — exciting, but risky. What if your dream house hits the market before yours sells? How do you cover the down payment without draining your savings or making a contingent offer? That’s where a bridge loan can help.

What Is a Bridge Loan?

A bridge loan is a short-term financing option designed to “bridge” the gap between buying a new home and selling your existing one. It’s essentially a temporary loan that allows you to use the equity in your current home to help fund the purchase of your next home before your old one is sold.

How It Works

  • Access Your Equity Early – The lender provides funds based on the equity in your current home. This can be structured as a lump-sum loan or a line of credit you can draw from.

  • Use Funds for the New Purchase – The bridge loan can help cover the down payment on the new home, closing costs, and even moving expenses.

  • Repay Once Your Old Home Sells – When your current home sells, you use the sale proceeds to pay off the bridge loan in full. Most bridge loans last 6–12 months, though terms can vary.

An Example

Let’s say your current home is worth $500,000 and you owe $250,000 on your mortgage. You have $250,000 in equity. The home you want to buy costs $600,000. A bridge loan could let you tap into a portion of that equity — say $150,000 — for your down payment on the new property, while your existing home is still on the market.

Advantages

  • Make a strong offer without a sale contingency

  • Move on your own schedule instead of rushing to sell

  • Tap your equity without waiting for closing on your current home.

Drawbacks

  • Higher interest rates than traditional mortgages

  • Closing costs and fees can add up

  • You could be carrying two mortgages temporarily if your old home takes longer to sell

  • If your home doesn’t sell quickly, repayment could be stressful.

Who Offers Them?

Not all lenders offer bridge loans — they’re a niche product, often provided by some banks, credit unions, specialty mortgage lenders, and private lenders.

Bottom Line

A bridge loan can be a lifesaver when timing doesn’t line up between selling your old home and buying a new one. It gives you flexibility, avoids contingent offers, and lets you move forward without draining your savings. But it’s also higher-cost, higher-risk money — so it works best for borrowers confident their current home will sell quickly. Before jumping in, compare it with alternatives like a HELOC, home equity loan, or even negotiating a rent-back with your buyer.