What is a bridge loan and how does it work?
A bridge loan is a short-term mortgage (6-12 months) that lets you buy a new home before selling your current one — using the equity in your existing property as the funding source. Bridge loans close in 10-14 days, offer interest-only monthly payments, allow up to 80% combined LTV across both properties, and have no prepayment penalty. When your current home sells, the proceeds pay off both the existing mortgage and the bridge loan in one transaction, leaving only the new permanent mortgage on your new home.
Best for: Move-up buyers, downsizers, and out-of-state relocators who need to buy before selling and can't afford to make a sale-contingent offer in a competitive market.
You've found your dream home — but you haven't sold your current one yet. Making an offer contingent on your home sale is risky in a competitive market; sellers routinely pass on contingent offers in favor of cleaner ones. A bridge loan solves this by temporarily unlocking the equity in your current home so you can make a strong, non-contingent offer on the new property while you prepare to sell.
How a Bridge Loan Works
A bridge loan is a short-term loan — typically 6 to 12 months — secured against your current home's equity. The proceeds are used toward the down payment and closing costs on your new home purchase. Once your current home sells, you repay the bridge loan from the sale proceeds. Structurally, you may carry two mortgages simultaneously for a period: the existing mortgage on your current home, the bridge loan (often interest-only), and the new mortgage on your new home. This temporary three-payment scenario is the primary cost of the strategy.
Qualification Requirements
Bridge loans are evaluated differently than purchase mortgages. Lenders typically want: at least 20–30% equity in your current home (to have adequate collateral after costs); strong credit (typically 680+); sufficient income to qualify for both mortgage payments simultaneously (though some lenders will exclude the departure residence payment if you can document an executed purchase contract); and a realistic, credible exit strategy — your current home needs to be marketable and priced appropriately.
Costs and Trade-offs
Bridge loans are convenient but not cheap. Rates are typically 2–4% above conventional mortgage rates, reflecting the short-term, higher-risk nature of the product. There are also origination fees, appraisal costs, and title costs — often $3,000–$6,000 in closing costs on top of the interest. For a 6-month bridge loan on $200,000 at 10%, you'd pay roughly $10,000 in interest. Whether that cost is worth it depends on the market: if a non-contingent offer gets you into a home $30,000 cheaper (or gets you the home at all), the math clearly favors the bridge.
Alternatives to Consider
Before going the bridge route, consider: Home equity line of credit (HELOC) — if you have time, opening a HELOC on your current home before listing it is often cheaper than a bridge loan and gives you a revolving credit line to draw from at closing. 80-10-10 piggyback — for buyers with some savings, a smaller first mortgage plus HELOC can sometimes replicate the effect without a bridge. Delayed closing — some sellers will negotiate a delayed closing to give you time to sell your current home. Rent-back agreement — when you sell your current home, negotiate a rent-back period of 30–60 days to give yourself time to close on your new purchase.
Frequently Asked Questions
How much can I borrow with a bridge loan?
What credit score and equity do I need to qualify for a bridge loan?
How much does a bridge loan cost?
Do I have to carry two mortgages at the same time?
What are the alternatives to a bridge loan?
Need to Buy Before You Sell?
Our bridge loan lets you make a clean, non-contingent offer on your next home while you sell your current one.
Bottom Line
Bridge loans are a niche tool, but in the right situation they're exactly the right tool. If you're a homeowner who needs to move quickly in a competitive market, the ability to present a clean, non-contingent offer is often worth the cost of the bridge. Contact Lumen to discuss whether your current equity position and financial picture make this a viable strategy for your move.
