What Is a Bridge Loan and How Does It Work?

Buying your next home before selling your current one sounds ideal—until you try to figure out how to qualify for a second mortgage. Even if you have solid income, carrying two full mortgage payments can push your debt-to-income ratio (DTI) too high for traditional approval on your new home. You might not have the second down payment ready either, since much of your equity is still tied up in your current home.

Bridge loans solve both problems. They allow homeowners to tap into their home’s equity to fund the down payment or purchase of a new property before the old one closes, and they can help neutralize the DTI from your existing mortgage—essentially canceling out that payment for qualification purposes. It’s short-term, transitional financing designed to make moving forward easier without waiting on your home sale.

Bridge loans are not for everyone. But for the right borrower, in the right market, they can create flexibility when timing and liquidity don’t line up perfectly.

How a Bridge Loan Works

A bridge loan is a temporary loan that "bridges" the gap between buying a new home and selling your existing one. The main goal of a bridge loan is to tap into the equity you’ve built in your departure residence without having to sell your home immediately, giving you quick access to those funds when you need them most. Typically, the loan is secured by your current home—the one you’re planning to sell or "departure residence" according to mortgage professionals—and it gives you immediate access to cash. Once your old home sells, you repay the bridge loan in full.

Most bridge loans last 4 to 12 months. Interest rates tend to be higher than on a conventional mortgage because lenders are taking on short-term risk and essentially betting on the borrower selling that first property quickly. Depending on the type of bridge loan selected, borrowers may be required to make no payments, interest-only payments, or the complete payment during the loan term. If the borrower is not required to make a payment all interest will accrue and be paid off from proceeds of the home sale.

There are two main ways to structure a bridge loan:

1. Cash-Out Refinance Structure (Preferred Option)

You use a short-term cash-out refinance to replace your current mortgage and pull equity out for your new home’s down payment. This approach can completely remove the DTI from your first loan, which helps you qualify more easily and simplifies your financial picture while you transition. Just make sure you work with a lender who will not require you to make payments on the refinance until your home sells, so you can avoid unnecessary cash flow strain during the overlap.

2. HELOC (Home Equity Line of Credit) Structure

You take out a home equity line of credit secured by your current property and use it for the down payment on your next home. While it can provide flexibility, it doesn’t eliminate the DTI from your first mortgage—so qualification can still be a hurdle if you’re carrying both loans. It can also create a cash flow crunch since you’re still making payments on your first mortgage—and likely on the HELOC too—while waiting for your departure residence to sell, which can be financially draining.

Both versions are designed to help you buy your next home using the equity in your current home—but they work very differently, each with its own advantages and trade-offs.

When to Use a Bridge Loan

Bridge loans are helpful in fast-moving or high-demand markets where waiting to sell before buying might cost you the home you want. They also help when life changes quickly—a job relocation, family expansion, or downsizing into a new chapter.

Example: Texas Buyer
A family in Austin finds their dream home in Westlake but can’t risk losing it while waiting to sell their current home in Cedar Park. A bridge loan lets them close on the new property, move in, and list the old one after.

Example: Florida Relocation
A couple in Connecticut is selling their longtime home to retire in Boca Raton. Rather than waiting months for their Connecticut property to sell, they use a bridge loan to secure their new home in Florida right away. The loan gives them access to the equity in their existing home so they can buy first without dipping into retirement savings or rushing their timeline.

Example: New Jersey Homeowner
A professional couple in Bergen County secures a bridge loan to buy in Ridgewood before their Montclair home closes. They use the equity from their current home for the down payment on their next one.

Example: North Carolina Relocation
A software engineer whose company relocated from Florida to North Carolina needed to move fast. With limited time to find housing near Raleigh, he needed to access the equity from his primary residence in Florida to buy his new home. Using a bridge loan, we helped him cash out of his Florida property quickly so he could close on his North Carolina home without delay and start his new job on time.

Bridge loans are most effective for buyers with strong equity positions and homes that are likely to sell within a few months.

Typical Bridge Loan Requirements

Each lender’s guidelines vary, but most bridge loan applicants should expect:

• Substantial equity (typically 40–50%) in their current home. While most lenders require at least 20% equity, the maximum loan-to-value on a cash-out refinance used for a bridge loan is generally around 80%. To make the bridge loan worthwhile and to pull out a meaningful amount of cash, you’ll want roughly 40–50% equity available—for example, no more than about $480,000 in total loans on an $800,000 home.

• Good credit (typically 680+) is required to qualify, but a score of 720 or higher will generally earn you a better rate and more favorable terms. Lenders reserve their best pricing for borrowers with excellent credit, so improving your score before applying can make a meaningful difference in cost.

• Debt-to-income ratio (DTI) below 50%. Your DTI measures how much of your monthly income goes toward debt payments, including mortgages, auto loans, and credit cards. Lower ratios show lenders that you can comfortably handle both housing costs and other financial obligations, improving your chances of approval and potentially your rate.

• Exit strategy showing how the bridge loan will be repaid (usually the pending home sale). Most lenders require you to list your departure property before or immediately after the bridge loan funds are disbursed, to demonstrate your intent to sell and provide a clear path for repayment once the sale closes.

Because these loans carry higher risk, lenders often look closely at your local housing market—especially how quickly homes are selling in your area.

Bridge Loan Interest Rates and Fees

Bridge loan rates are generally higher than traditional mortgages—usually 1.5% to 3% above a conventional mortgage rate. Closing costs can range from 1% to 3% of the loan amount, similar to a refinance.

You may have options for:

• Interest-only payments during the term.

• Deferred payments until your home sells.

• Lump-sum repayment at closing.

While the cost may seem high, the convenience of securing your new home first often outweighs the short-term expense. At LendFriend Mortgage, we almost always recommend choosing a deferred payment option. There’s very little benefit to making monthly payments on a bridge loan, and doing so can make life much harder for the borrower during the transition. Deferring payments until the home sells helps preserve cash flow and keeps the process as stress-free as possible.

What If You Only Need to Drop Your DTI?

What if you already have the cash for a second down payment but still can’t qualify because of your existing mortgage? For many homeowners, the challenge isn’t liquidity—it’s leverage. Even with six figures in the bank, lenders still factor in your full mortgage payment on the home you’re selling, which can easily push your debt-to-income (DTI) ratio above the qualifying limit. In other words, the bank sees two mortgages, even though you’ll only keep one.

That’s where LendFriend’s DTI Drop program becomes a powerful alternative to a traditional bridge loan. Designed for borrowers who already have the cash to move but need relief from the DTI impact of their departing residence, this program temporarily removes that first mortgage payment from your qualification profile. By doing so, you can qualify for your new mortgage as if your old home were already sold.

Imagine you’ve found your next home and your current one is under contract but not yet closed. Normally, your existing mortgage would count against you until the sale is final. With DTI Drop, that payment is excluded from your ratios once your home is actively listed or pending sale, allowing you to close on your new purchase without delay.

The result? You can drop the home sale contingency entirely, making your offer far more appealing to sellers. In a competitive market, that flexibility can mean the difference between winning and losing your dream home.

It’s a smart solution for move-up buyers who simply need breathing room between transactions. By keeping your first mortgage off your balance sheet temporarily, DTI Drop delivers the same outcome as a bridge loan—but without the added cost or complexity of new financing.

Example: Dallas Buyer
A family in Dallas wanted to upgrade from their starter home in Richardson to a larger home in Lakewood. They already had the down payment saved but couldn’t qualify for the new loan because their first mortgage pushed their DTI too high. Using DTI Drop, we removed the departing residence’s mortgage from their ratios, allowing them to make a clean, non-contingent offer on their new home while their first property was still listed.

Example: Los Angeles Buyer
A tech executive in Los Angeles found her next home in Studio City while her existing condo in Culver City was still on the market. She had plenty of liquid assets for the down payment, but the dual mortgage payments disqualified her under conventional guidelines. With DTI Drop, we temporarily excluded her condo mortgage, enabling her to close on her new property without delay and sell her old home at a better price, on her own timeline.

Pros and Cons of a Bridge Loan

Advantages:

• Lets you buy before you sell.

• Removes the need for contingent offers, which sellers rarely accept in competitive markets.

• Provides flexibility during relocations or life transitions.

• Allows you to stage or renovate your old home before listing.

Disadvantages:

• Higher interest rates than traditional loans.

• Short repayment timeline.

• Risk of owning two homes simultaneously if your current one takes longer to sell.

• Must have sufficient equity to qualify.

For some, these drawbacks are manageable—especially with help from an experienced mortgage broker who can structure the loan efficiently.

Bridge Loan vs. Home Equity Loan vs. HELOC

It’s easy to confuse these three, but the differences matter.

Home Equity Loan

Provides a fixed lump sum against your home’s equity, typically repaid over five to twenty years. It’s a longer-term, lower-cost option than a bridge loan, but approval can take longer.

HELOC (Home Equity Line of Credit)

Functions like a credit card secured by your home. You draw what you need, repay it, and reuse the credit line. HELOCs have variable rates and longer repayment terms.

Bridge Loan

Short-term financing meant to last only until your old home sells. It prioritizes speed and convenience over long-term cost.

If you’re unsure which path fits best, start by exploring your overall homebuying strategy with a mortgage expert.

Before You Apply: What to Know First

Before applying for a bridge loan, it’s worth understanding the practical details. Upfront expenses like closing costs, origination fees, and appraisals can add up quickly, so it’s smart to weigh them against the short-term benefit of buying first. Equally important is your protection if your current home takes longer than expected to sell—because bridge loans are secured by that property, missed payments can lead to serious risk. Always review your lender’s terms and timeline expectations carefully, including how long your home must be listed and when repayment will be due.

Before You Apply: What to Know First

Before applying for a bridge loan, it’s worth taking a deeper look at what’s involved. Bridge loans are convenient but complex—and understanding every piece before you sign is essential.

Upfront Costs and Fees
Like traditional mortgages, bridge loans come with closing costs, origination fees, and sometimes appraisal or title expenses. Expect to pay one to three percent of the loan amount in total costs. Some lenders may also charge documentation or administrative fees. It’s important to understand these upfront so you can decide whether the short-term convenience outweighs the added expense.

Market Risk and Timing
Because bridge loans are tied to your departing residence, your ability to repay depends heavily on your home’s sale. If market conditions shift, or your home sits on the market longer than expected, the loan can quickly become more stressful than helpful. Knowing your local market’s average days on market and current demand can help you prepare for a realistic timeline.

Listing and Repayment Requirements
Most lenders require you to list your home before or immediately after the bridge loan funds are disbursed. This demonstrates your intent to sell and creates a clear repayment path once your sale closes. Some lenders may even set specific milestones for showing activity or contract dates—so be sure you understand those obligations ahead of time.

Limited Buyer Protection
Protections for borrowers can be limited if a sale falls through. Because the bridge loan is secured by your existing property, missing payments could result in foreclosure. It’s crucial to know exactly how long you can sustain both homes financially if your current one doesn’t sell as quickly as planned.

Strategic Planning with Your Broker
Before committing, run several scenarios with your mortgage broker. Ask what happens if your home takes 30, 60, or even 90 days longer to sell. A good broker will model your options and build in cushions so you’re never overextended. At LendFriend, we help clients evaluate every variable—from listing timelines to tax implications—so you can make an informed decision.

Final Thoughts: Bridging the Gap the Smart Way

Bridge loans give homeowners flexibility when timing and financing collide. They allow you to move forward confidently—whether you’re upgrading, downsizing, or relocating.

But they’re not one-size-fits-all. The right bridge loan depends on your home equity, local market, and timeline. That’s where working with a mortgage broker matters.

At LendFriend Mortgage, we help buyers compare bridge loans alongside other short-term financing options, including Buy Before You Sell strategies. Our goal is simple: help you move without the stress of selling first—and without paying more than you should.

If you’re thinking about buying before you sell, or you want to understand which option fits your situation, schedule a quick consultation today. Let’s build the bridge to your next home—on your terms. Give us a call at 512.881.5099 or reach out to us here. We’d love to be your partner in the process.