Bridge loans: buying before you sell, and other short gaps

A bridge loan is borrowed time: financing for the months between two events — a purchase and a sale, a stabilization and a permanent loan, a closing and a lease-up. It is expensive because it is short and because the exit is the whole credit story.

Three common bridges

Homeowner bridge: you want to buy a new home before your current one sells. The bridge is secured by your current home (or both), funds the down payment on the new one, and is repaid from the sale. Consumer-purpose, so it is regulated like a mortgage and offered mainly by banks, credit unions and a few specialists.
Investor bridge: a short loan on a property that does not yet qualify for permanent financing — vacant, under renovation, or recently acquired — repaid by a refinance once it is stabilized. This is hard money by another name.
Commercial bridge: for apartment or commercial buildings between acquisition and a lease-up or repositioning, repaid by agency or bank debt.

Terms

Six to twelve months (sometimes 24), interest-only, with rates from roughly 8% on bank homeowner bridges to 10% to 13% on investor bridges, plus 1 to 3 points. Leverage is typically 65% to 80% of the collateral’s value, sometimes measured across both properties. Payments may be deferred and added to the balance on some homeowner bridges.

The homeowner math

Current home worth $500,000 with a $250,000 mortgage; new home $600,000. A bridge of $150,000 against the current home funds a 25% down payment; you carry three payments (old mortgage, bridge interest, new mortgage) until the sale — perhaps $5,500 a month for three to six months. If the old home takes nine months to sell at a lower price, the bridge becomes the most expensive part of the move. Lenders qualify you on all three payments, which is the usual obstacle.

Alternatives

HELOC on the current home, opened before listing — cheaper, but lenders will not open one on a home that is already listed.
Contingent offer — weak in a seller’s market, fine in a buyer’s market.
Rent-back — sell first, rent from the buyer for 30 to 60 days.
“Buy before you sell” companies that purchase the new home for you or guarantee the old one — convenient, with fees of 1% to 3% or more.
401(k) loan for the down payment, repaid after the sale (risks if you change jobs).

Frequently asked questions

Do bridge loans require monthly payments?

Most investor bridges are interest-only monthly; some homeowner bridges defer interest until the sale. Deferred interest accrues and is repaid from proceeds.

What happens if the property does not sell before the bridge matures?

Extensions (for a fee), a price cut, or refinancing into a longer loan if the property qualifies. A bridge without a realistic plan B is how homeowners end up with two mortgages and no buyer.

Is a bridge loan the same as hard money?

Investor bridge loans are hard money in structure and pricing. Homeowner bridges from banks are consumer loans with different rules and usually lower cost.