What is a bridge loan and when would I use one?

A bridge loan is a short-term loan that provides temporary financing to 'bridge' the gap between buying a new home and selling your current home. It is commonly used when a homeowner wants to purchase a new property before their existing home sells. The bridge loan covers the down payment on the new home, and it is paid off when the current home sells. Bridge loans are also called swing loans or interim financing.

How does a bridge loan work in a concurrent closing?

In a concurrent closing scenario, the purchase of the new home and the sale of the current home happen simultaneously (or nearly so). The bridge loan lender pays the down payment for the new home at closing. When the current home sells, the proceeds are used to pay off the bridge loan. If the sale doesn't happen within the bridge period, the borrower may need to extend the bridge or refinance into a longer-term loan.

What are typical bridge loan terms and costs?

Bridge loans typically have terms of 3 to 12 months with interest-only payments. Interest rates are higher than conventional mortgages — typically 8% to 12% annually. Lenders may also charge origination fees, points, and closing costs. Since the loan is short-term and the borrower is simultaneously carrying two mortgages, lenders charge a premium for the risk.

What is a sale contingency and should I include one?

A sale contingency is a clause in your purchase agreement that makes the transaction dependent on successfully selling your current home by a specific date. If the sale falls through, you can back out of the purchase without penalty. While a contingency protects you, it may make your offer less competitive — especially in a seller's market where buyers are competing with non-contingent offers.

How much can I borrow with a bridge loan?

The bridge loan amount is typically based on the equity in your current home. Most lenders will lend up to 80% of the equity (home value minus mortgage balance). The proceeds from the bridge loan are used as the down payment for the new home. Some lenders offer up to 100% of equity, but this increases the risk and may come with a higher rate.

What happens if my current home doesn't sell?

If your home doesn't sell within the bridge period, you have several options: extend the bridge loan (if the lender allows, possibly at a higher rate), refinance the bridge into a longer-term loan, or sell your current home at a lower price. If none of these work, you risk foreclosure on both properties. Having a realistic pricing strategy and marketing plan for your current home is crucial.

Are there alternatives to bridge loans?

Yes. Alternatives include: a home equity line of credit (HELOC) on your current home, a cash-out refinance of your current property, a personal loan (if the amount is small), or simply selling your current home first before making an offer on a new one. Each option has different costs, tax implications, and timing considerations.

Do I qualify for a bridge loan?

Bridge loan qualification is less rigid than conventional mortgages, but lenders still review your credit score, debt-to-income ratio, and the equity in your current home. Most lenders require a minimum credit score of 680+, evidence of sufficient income to cover both mortgages, and at least 20% equity in your current home. The property being purchased and the property being sold both serve as collateral.

Bridge Loan Calculator

A bridge loan calculator is a free online tool that estimates the cost of bridge financing for concurrent real estate closings. It shows loan amounts, interest costs, and net proceeds to help you decide if bridging is right. Free, no sign-up required.

Bridge Loan Details

Current Home Value?Enter your current home value.

Current Mortgage Balance?Enter your current mortgage balance.

New Home Price?Enter your new home price.

Down Payment %?Enter your down payment %.

Bridge Interest Rate?Enter your bridge interest rate.

Bridge Duration?Enter your bridge duration.

End of inputs

Bridge Loan Results

Equity in Current

$150,000.00

Value - Mortgage

Net Proceeds from Sale

$142,000.00

After closing costs

Down Payment Needed

$120,000.00

20.00% of new price

Bridge Amount

$0.00

Gap to fill

Bridge Interest Cost

$0.00

Over 6 months

Net Cash Needed

$0.00

Out of pocket

Transaction Breakdown

Transaction Summary

New Home Price: $600,000.00

New Loan Amount: $480,000.00

Bridge Total Cost: $0.00

Monthly Bridge Interest: $0.00

Key Insights

A 6-month bridge period carries significant risk. If your current home doesn't sell within this timeframe, you may need to extend the bridge, potentially at a higher rate. Bridge loan extensions can be costly and are not guaranteed — plan for a swift sale or have backup financing in place.

Your equity of $150,000.00 in your current home exceeds the down payment of $120,000.00 needed for the new home. After closing costs, you may not need a bridge loan at all — or may only need a small one to cover timing gaps.

You do not need a bridge loan — the net proceeds from selling your current home cover the down payment on the new home. This is the ideal scenario: no extra debt, no bridge interest cost, and a simpler closing process.

Guide

How to Use This Calculator

1Enter the estimated market value of your current home.
2Input the outstanding mortgage balance on your current home.
3Enter the purchase price of the new home you want to buy.
4Set the down payment percentage for the new home.
5Enter the bridge loan interest rate and expected duration in months.
6Review the results to see the bridge amount, interest cost, and net proceeds needed.
7Use the AI insights to understand holding costs, timeline risks, and contingency recommendations.

Formula

How It's Calculated

Bridge loan calculation:

1. Equity in Current Home = Current Home Value - Current Mortgage Balance

2. Net Proceeds from Sale = Equity - Closing Costs (typically 2%)
   Closing Costs = Current Home Value x Closing Cost Rate

3. Down Payment Amount = New Home Price x Down Payment %

4. Bridge Amount = max(0, Down Payment - Net Proceeds from Sale)

5. Bridge Interest Cost = Bridge Amount x (Rate / 12) x Months

6. Bridge Total Cost = Bridge Amount + Bridge Interest Cost

7. Net Cash Needed = max(0, Bridge Total Cost - Net Proceeds)

Example: $400,000 current home, $250,000 mortgage, $600,000 new home:
  • Equity = $400,000 - $250,000 = $150,000
  • Closing Costs = $400,000 x 0.02 = $8,000
  • Net Proceeds = $150,000 - $8,000 = $142,000
  • Down Payment (20%) = $600,000 x 0.20 = $120,000
  • Bridge Amount = max(0, $120,000 - $142,000) = $0
  • No bridge needed!

Glossary

Key Terms

FAQ

Frequently Asked Questions

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