What a bridge loan is
A bridge loan is a loan taken on your current house that "bridges" the gap between buying a new home and selling the old one. NerdWallet says it can let you buy a new house before selling your old one, with no sale contingency in your offer. Bankrate says some lenders can fund in as little as two weeks, and that payments may be deferred or interest-only until you sell.
The money often goes for the down payment on the next house. When your first house sells, the bridge loan is paid from the sale, and the rest is yours. If it does not sell in time, the bridge loan can come due while you also owe your new mortgage.
What a bridge loan costs
Bankrate says rates run from the prime rate to the prime rate plus 2 percentage points, terms are usually six to twelve months (some are as short as three), and many lenders want at least 20% equity in your current home (some allow 15%). Bankrate mentions a minimum credit score of 680 and a debt-to-income ratio up to 50% at some lenders. In its example, $2,000 of the loan goes to closing costs.
We could not find an official source for typical bridge loan fees, such as an origination percentage, so the example below uses assumptions that we label. Replace them with the numbers on your own Loan Estimate. Under the Mass.gov homebuying guide, a lender issues its disclosures, including the Loan Estimate, within three days of receiving an application. Compare Loan Estimates from at least two lenders.
| Item | Assumption | Cost |
|---|---|---|
| Interest | 9% a year (our assumption), 3 months | $2,250 |
| Origination fee | 1.5% of the loan (our assumption) | $1,500 |
| Closing costs | $2,000 (the example figure in Bankrate) | $2,000 |
| Total | $5,750 |
If the sale takes 6 months instead of 3, the interest doubles to $4,500 and the total is $8,000. The longer the old house sits, the more the loan costs, and you may be paying two housing costs at once.
Who a bridge loan fits
It fits if you have a lot of equity, strong credit and income, a home likely to sell fast, and a plan to repay it in months, not years. It is a poor fit if your first home needs repairs, the price is uncertain, or your budget cannot carry two payments. In a slow sale, an uncertain price can turn a short loan into a long one. See how long it takes to sell a house in Massachusetts.
Alternatives to a bridge loan
| Option | How it works | Trade-off |
|---|---|---|
| HELOC on your current home | A line of credit secured by your house. The CFPB says a HELOC lets you borrow repeatedly up to a limit and is a second mortgage | Ask lenders about timing and apply before you list. The line must be paid and closed at your sale; see HELOC payoff at sale |
| Contingent offer | Your offer to buy depends on selling your current home | Sellers may prefer offers without it; terms go in the purchase and sale agreement, so have your attorney draft it |
| Sell first, then buy | Close on your sale, then shop with cash in hand | You need somewhere to live in between; see rent-back after sale and moving and storage costs |
| Same-day or back-to-back closings | Close on the sale and the purchase on the same day | A delay on one closing affects the other; see selling and buying at the same time |
| Cash offer for your old home | A cash buyer may be able to close faster | Price is usually lower than a listing; compare both in the comparison tool |
Massachusetts details to ask your attorney about
A bridge loan is a loan secured by your house, so it is recorded like any mortgage and must be paid and discharged when you sell. Under MGL c.183 s.55, a lender has 45 days after payment to record a discharge. See selling a house with a mortgage. If you have other liens, see liens and judgments when selling.
Ask each lender: Will you count both my new mortgage and the bridge payment when you qualify me? What is the total cost if my house takes twice as long to sell? Is there a prepayment fee? Can the bridge loan be repaid early with no penalty?
General information, not financial advice. Rates change; check the current prime rate and the lender's Loan Estimate. This page is not a loan offer.