A bridge loan lets you buy a new property before you sell your current one. The lender advances funds secured by real estate, typically your existing property, the new one, or both, and you repay the loan from the sale proceeds. It removes the sale contingency from your offer, which can matter a great deal when a seller wants certainty.
It is a useful tool when the sequencing problem is real, and a risky one when the sale is uncertain. This guide explains how the structure works, what lenders look at and what to plan for.
The problem a bridge solves
Most owners cannot comfortably buy the next property until the equity in the current one is freed up by a sale. But sellers often will not accept an offer contingent on your sale, and a gap between closings can force a rushed sale or a lost purchase. A bridge loan fills that gap so you can buy on your timeline and sell on a more deliberate one.
Common ways it is structured
- Loan secured by the property you are selling. You borrow against your current property's equity and use the funds for the down payment or full purchase of the new one.
- Loan secured by the new property. The loan funds the acquisition and is repaid when the old property sells.
- Loan secured by both. The lender takes a deed of trust on each, which can support a larger loan or a lower-risk position for the lender.
Which structure fits depends on how much equity you have, the property types and how much cash you need. We discuss private bridge options for luxury residential, commercial and apartment collateral on our private loans page.
What lenders look at
The core questions are the same as for any private loan: equity, capacity to make payments and exit. For a buy-before-you-sell loan, the exit is the sale of the current property, so lenders pay close attention to it. Our guide to exit strategies for a bridge loan shows how lenders test it.
- Equity in the property being sold. How much is it worth and how much is owed against it? The cushion protects the loan if the sale takes longer or brings less than hoped.
- Marketability. Is the property listed or ready to list, and is it priced realistically? A property that is hard to sell is a weaker exit.
- Payment capacity. Can you carry the existing mortgage, the bridge interest and the costs of the new property at the same time?
- The new purchase. A contract, the property's value and your plan for it.
Our article on how private lenders value a property explains how the value side is assessed, and what private lenders look at when underwriting covers the overall file.
Key takeaways
- A bridge lets you buy now and sell later, repaying the loan from sale proceeds.
- Lenders focus on equity, your ability to carry two properties and how likely the sale is to happen on time.
- The main risk is a delayed or lower-than-expected sale, so plan for both before you borrow.
Sequencing: a typical timeline
- Estimate the sale. Get a realistic view of your current property's value and time on market before you commit to a purchase.
- Talk to a lender early. Confirm what the bridge could look like while you are still deciding on the new property.
- Make your offer. With financing arranged, you can offer without a sale contingency.
- Close the purchase. Funding is subject to a complete file, underwriting, title review and valuation, so give the process room.
- Move and prepare the old property. List it promptly and price it to sell.
- Sell and repay. Proceeds pay off the bridge, and the loan is closed out.
Carrying costs to count
Add up everything you will be paying at once: interest on the bridge, any remaining payments on the existing mortgage, taxes and insurance on both properties, utilities, maintenance and, if applicable, staging and selling costs. For illustration only (hypothetical example), if those combined costs run $15,000 a month and the sale takes four months longer than planned, that is $60,000 more than you budgeted. Stress-test your plan with a slow-sale scenario. For more on cost structure, see how hard money loans are priced.
The risks
- The sale takes longer than expected. Interest and carrying costs keep running.
- The sale price comes in lower. A thinner cushion may leave less cash than you planned.
- The buyer's financing fails. A pending sale is not a closed sale.
- You are carrying two properties. Cash flow pressure is the most common reason these plans go wrong.
Reduce these risks by pricing the old property realistically, preparing it for sale before you close on the new one and having a backup, such as a refinance of the old property if it will not sell. Extensions are not guaranteed, so do not rely on them as the plan.
This is general information, not legal, tax or investment advice. If you are weighing a purchase ahead of a sale, call us at (800) 943-1314 or submit your scenario and we will review it individually.
Published by the US Lending & Company underwriting desk. General information only — not legal, tax or investment advice.