What Is Bridge Loan?
A bridge loan lets you buy the next property before your current one sells. You've got equity locked in your existing home or rental — but you can't tap it until the sale closes. A bridge loan gives you the down payment or full purchase price now, with the expectation you'll repay it when the old property sells. The trade-off: rates run 1-3% above conventional mortgage rates, terms are 6-18 months, and if your property sits unsold you're juggling two payments. For the right situation — short window, strong equity, clear exit — it solves the buy-first-then-sell puzzle. For the wrong one, the carrying costs eat you alive.
A short-term loan used to bridge the gap between buying a new property and selling an existing one.
At a Glance
- What it is: Short-term gap financing to buy a new property before selling your current one.
- Why it matters: Unlocks equity you can't access until sale closes — lets you act on a deal without waiting.
- Typical term: 6-18 months; you repay when the old property sells.
- Cost: Rates 1-3% above conventional; higher because the lender carries risk if you don't sell.
- Collateral: Lien on your current property (or sometimes the new one) — your equity is the security.
How It Works
You find a deal you want. Problem: your capital is tied up in a property that hasn't sold yet. A bridge loan gives you the funds to close on the new purchase — using your existing property as collateral. The lender places a lien on your current home. Once you sell it, the proceeds pay off the bridge loan. Clean exit — if the sale happens on schedule.
The structure. Bridge loans typically run 6-18 months. Interest-only payments are common — you're not amortizing, you're buying time. The lender underwrites based on your equity in the existing property and the likelihood of a timely sale. They want to see: enough equity to cover the loan, a realistic list price, and a market where properties move. If your house has been on the market 6 months with no offers, you're a tougher approval.
How it differs from hard money. Hard money is asset-based, short-term, and used for acquisition + rehab — think BRRRR and flips. Bridge loans are specifically for the buy-then-sell scenario. You're not renovating; you're bridging a timing gap. Hard money lenders sometimes offer bridge products, but traditional banks and specialty lenders also do bridge loans. The common thread: higher rate, short term, collateral-based.
The risk. If your property doesn't sell in 12 months, you're carrying two mortgage payments. Bridge loan interest + your new property's payment. In a slow market, that's a lot of cash going out. Extension fees kick in if you need more time — 0.5-1% per month in some cases. The clock doesn't stop because buyers aren't showing up.
Real-World Example
Indianapolis move-up. You own a 3-bed that's worth $285,000 with a $180,000 mortgage — $105,000 in equity. You find a duplex listed at $340,000 that would cash-flow $400/month. You want it. But your current house hasn't sold yet.
You take a bridge loan for $85,000 — enough for the 25% down on the duplex plus closing costs. Rate: 9.5% (2% above your current mortgage). Term: 12 months. Interest-only: $673/month.
You close on the duplex. Now you're paying: $673 (bridge) + $1,420 (new duplex PITI) = $2,093/month. Your old house is listed at $279,000. It sells in 4 months. Sale proceeds: $279,000 − $180,000 payoff − $16,700 closing = $82,300. You pay off the bridge loan. Total bridge cost: $673 × 4 = $2,692. The duplex is yours, and the bridge did its job.
If it hadn't sold in 4 months: At month 12, you'd owe the full bridge balance. You'd need an extension — 1% fee = $850. And you'd have paid $8,076 in bridge interest over the year. That's the risk. If the market stalls, the bridge gets expensive fast.
Pros & Cons
- Lets you act on a deal without waiting for your current property to sell.
- Unlocks equity that's otherwise inaccessible until closing.
- Faster than listing, selling, then buying — you can compete with cash buyers on timing.
- Interest-only payments keep the monthly nut lower during the bridge period.
- Solves the chicken-and-egg problem: can't buy without selling, can't sell without a place to go.
- Higher rates — 1-3% above conventional — because the lender carries timing risk.
- Two payments if the sale drags — bridge interest + new property payment.
- Extension fees add up — 0.5-1% per month if you need more time.
- Requires significant equity in the existing property — lenders want collateral.
- Market risk — if properties stop selling, you're stuck holding both.
Watch Out
- Execution risk: Don't bridge without a realistic sale plan. List at a price that moves — in a normal market, 3-6 months is reasonable. If you're overpriced by 10%, you might sit 12+ months. Run the numbers: bridge interest × 12 months. Can you afford that if the sale takes a year?
- Exit risk: What if the sale falls through at the last minute? Backup plan: refinance the new property to pull equity, or private money. Have a Plan B before you sign.
- Modeling risk: Don't assume a 30-day sale. Use 4-6 month projections for your bridge cost model. If the numbers only work with a 2-month bridge, you're cutting it too close.
Ask an Investor
The Takeaway
A bridge loan solves the timing problem: you've got a deal you want and equity you can't touch until your current property sells. It lets you buy first, then sell. The cost is real — higher rates, short term, and the risk of carrying two payments if the sale drags. Use it when you've got strong equity, a realistic list price, and a market where properties move. Don't use it as a substitute for pricing your current property to sell. The bridge only works if the other side gets built.