Bridge loans: What you need to know before you buy first

Written by Samantha SheltonNMLS 1647301Updated October 2026

A bridge loan is short-term financing secured by the home you already own, used to cover the down payment and closing costs on your next home before the first one sells. It is defined by its clock: Regulation Z classifies a “temporary or ‘bridge’ loan” as one with a term of 12 months or less, and lenders in Align’s network typically write them for 6 to 12 months.

Family moving boxes from their current home to a new one, the transition a bridge loan is designed to finance

Lenders generally cap borrowing near 80% of value and want at least 20% equity left in the home you’re leaving. Payments are usually interest-only, with the full balance due when the old house closes.

Learn how bridge loans work, what they cost, who qualifies, and how they compare to a HELOC or a cash-out refinance. If you’re still mapping the field, start with our Loan Types & Programs guide.

Key takeaways:

Short term by design: Bridge loans run 6 to 12 months and are repaid in full when your current home sells. Federal rules draw the line at a term of 12 months or less.
Equity is the gatekeeper: Lenders generally want at least 20% equity and cap borrowing near 80% of value, on a $400,000 home with a $200,000 mortgage, roughly $120,000 to work with.
You pay for speed: Pricing commonly runs prime to prime plus 2 percentage points, plus its own closing costs, in exchange for funding in days instead of the 30 to 45 days a purchase mortgage takes.

What is a bridge loan?

A bridge loan is a short-term loan, typically 6 to 12 months, that converts equity in the home you own into cash to buy your next home before the first one sells. It bridges the gap between two closings that don’t line up.

You’ll also see it called a swing loan, a gap loan, or interim financing. What sets it apart from a mortgage isn’t the collateral (it’s still your house) but the repayment plan. A mortgage is paid down over decades. A bridge loan is paid off in one lump sum, on a date you don’t fully control.

Bridge loans sit in the specialty financing category, which matters for one reason: no federal agency and no agency guideline sets bridge loan terms.¹ Every number here describes what lenders commonly do, not what a rulebook requires.

How does a bridge loan work?

The lender puts a lien on your current home, advances part of the equity, and expects the balance back when that home closes. Most bridge loans are interest-only, then end in a balloon payment, one payoff of the entire principal at maturity.

1. The lender values your current home: An appraisal or lender valuation sets the number everything else is calculated from.
2. Available equity is calculated: The lender applies its maximum loan-to-value ratio, then subtracts what you owe.
3. The bridge funds at your purchase closing: Proceeds go toward the down payment and closing costs on the new home, alongside your new mortgage.
4. You carry the payments: Until the old house sells, you may be servicing three obligations at once.
5. The sale pays it off: At the old home’s closing, the title company retires both loans out of the proceeds.

A worked example. Say you own a Waterford home worth $400,000 and still owe $200,000. A lender capping you at 80% of value allows $320,000 of debt against it, leaving about $120,000 of usable equity, enough for a 20% down payment of $100,000 on a $500,000 next home plus roughly $15,000 of closing costs. Through the gap you owe interest on the $120,000 bridge plus both mortgage payments.²

Bridge loan terms and costs at a glance

Bridge terms cluster in a narrow band across lenders, because they’re all solving the same short-horizon problem.

Feature	What lenders typically do	Why it lands there
Term	6 to 12 months; some up to 3 years	Twelve months or less is the federal definition.
Maximum loan-to-value	About 80% of value, or of both homes combined	Leaves a cushion if the home sells under appraisal.
Equity required	At least 20% in the home you’re leaving	That equity is the only repayment source.
Payment structure	Interest-only, with a balloon payoff at maturity	Keeps carrying costs low while you hold three payments.
Rate structure	A spread over prime, commonly prime to prime plus 2 points	Short terms and one repayment source carry more risk.
Fees	Origination, valuation, title and recording	It’s a separate closing with a separate lien.
Time to fund	Days, in many cases	The lender is underwriting equity you already have.

Because pricing is a spread over prime, your rate moves with prime for as long as the loan is outstanding. Prime isn’t a government rate: the Federal Reserve’s H.15 release defines the bank prime loan rate as the rate “posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks,” and posts it every business day, Monday through Friday. Ask any bridge lender for the index, the margin, and the reset schedule.

When does a bridge loan make sense?

A bridge loan earns its cost in one situation: when the gap between your sale and your purchase would otherwise cost you the house.

You need a non-contingent offer: A sale contingency ties your purchase to your own home closing, and it’s the fastest way to lose to a cleaner bid. See how the clause works in contingencies in home offers, and what else moves a bid forward in winning a house in a seller’s market.
Your current home should sell quickly: The bridge is a bet on your listing. Check the current median days on market first, NAR publishes that data monthly, and the figure moves with the season.
You have equity and payment headroom: You need at least 20% equity to qualify at all, plus enough cash flow to carry three payments for the full term.

It makes less sense when your listing is priced aggressively, when the equity math is thin, or when you’re adding a property rather than replacing one. If you’re keeping the first home, see buying a second home.

Bridge loan vs. HELOC vs. cash-out refinance

All three turn equity into cash, and the choice usually comes down to one question: have you already listed the house? Most lenders won’t open a new line of credit or write a new first mortgage on a home that’s actively for sale.

Feature	Bridge loan	HELOC	Cash-out refinance
What it is	Short-term lien on the departing home	Revolving line secured by your equity	A new, larger first mortgage
Typical term	6 to 12 months	Draw period around 10 years	15 to 30 years
Payment during the gap	Interest-only, then a balloon payoff	Interest-only on what you’ve drawn	Full principal and interest
Available once listed?	Yes. That’s the use case	Usually no	Usually no
Relative cost	Highest: prime-based pricing plus its own fees	Lower rate, lighter fees	Closing costs on the entire loan
Best for	Buyers needing speed and a clean offer	Planners who act before listing	Owners staying put

The honest ranking: if you have the runway, a home equity line of credit (HELOC) is the cheaper tool, and it should be opened before the sign goes in the yard. A bridge loan is what’s left once that window closes.

Are bridge loans regulated like a mortgage?

Partly, and the gap matters. Regulation Z’s ability-to-repay rule, the standard that forces a lender to verify you can afford a mortgage, exempts “a temporary or ‘bridge’ loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months.”³ The protection built into a 30-year loan doesn’t follow you here.

You should still get a Loan Estimate: Regulation Z has no bridge exemption from the disclosure rules. On a closed-end consumer loan secured by real property, the Loan Estimate is due by the third business day after application, and the Closing Disclosure at least three business days before closing. Use the CFPB’s guide to reading a Loan Estimate to compare bridge offers.
Business-purpose loans fall outside all of it: Regulation Z doesn’t apply to “an extension of credit primarily for a business, commercial or agricultural purpose,” and some bridge lenders write their paper that way. Then there’s no Loan Estimate, no Closing Disclosure, and no right to cancel. Ask in writing which it is.
A three-day right to cancel usually applies: When a lender takes a security interest in your principal dwelling, you generally have until midnight of the third business day to rescind. The exemption for a “residential mortgage transaction” covers loans buying that dwelling, and a bridge loan on the home you’re leaving buys a different one.⁴

One more quirk: the high-cost mortgage rules ban balloon payments but carve out a bridge loan maturing in 12 months or less tied to acquiring your principal dwelling. The balloon is baked in by design.

Pros and cons of bridge loans

The trade: you’re buying certainty on the purchase side and taking risk on the sale side.

Pros

A clean offer: Dropping the sale contingency puts you in the same category as a buyer who isn’t waiting on anything.
Speed: Funding in days rather than the 30 to 45 days a purchase mortgage takes.
One move instead of two: You skip the rental, the storage unit, and a second set of moving costs.

Cons

The most expensive tool in the equity kit: Prime-based pricing plus a full set of closing costs on a loan you’ll hold under a year.
Three payments at once: Budget for the full term, not your optimistic timeline.
Limited availability: Not every lender offers bridge financing, and terms vary widely.
Maturity risk is the real one: If the house hasn’t sold when the term ends, you owe the balloon anyway. Some lenders grant a paid extension, some let you refinance into a home equity line, and some move toward foreclosure. Get the maturity provisions, the extension fee, and the default terms in writing before you close.

Do you qualify, and will your new mortgage still work?

Two approvals have to land, not one. The bridge lender underwrites your equity, and your new permanent mortgage has to be approved while that bridge loan sits on your file.

For the bridge itself, lenders in our network generally look for at least 20% equity in the departing home, credit in the good-to-excellent range, and a debt-to-income ratio that absorbs all three payments. Requirements vary by lender, with no agency floor to fall back on.

The second approval is where files break. Fannie Mae’s Selling Guide addresses bridge and swing loans in its monthly debt obligations rules: when a borrower obtains one and “the funds from that loan can be used for closing on a new principal residence before the current residence is sold,” that obligation is weighed in qualifying you for the new mortgage (B3-6-05). Separately, when your current home is pending sale, the default is that “the current PITIA and the proposed PITIA must be used in qualifying the borrower”, both housing payments, unless the lender documents “the executed sales contract for the current residence, and confirmation that any financing contingencies have been cleared” (B3-6-06). With that documentation, only the new payment counts.

So an accepted offer with cleared contingencies on your old home is worth real money in the underwriting of your new one. Sequence the two files together.

Alternatives to a bridge loan

Before you pay bridge pricing, price the alternatives. Several are cheaper.

A HELOC opened early: Cheaper rate, lighter fees, flexible draws, and unavailable once you list. Set it up months ahead.
A home equity loan: A fixed second lien with predictable payments and no balloon. Compare on cost and speed in home equity loans, pros and cons.
Buy-before-you-sell programs: Providers that buy your next home in cash or guarantee your sale for a fee. Terms vary sharply.
Taking over the seller’s loan: Where the seller’s FHA, VA, or USDA financing can be transferred, an assumable mortgage shrinks what you bring to the table. Conventional loans generally can’t be assumed, and every assumption needs lender approval.
Seller financing or a rent-back: Ask the seller to carry paper or lease back.
A profession-specific program: Physician mortgages are the best-known example, and like bridge loans their terms are set by the individual lender, not by an agency rulebook.
Selling first and renting: The cheapest option here, and in a slower market often the right call.

How Align handles specialty financing

Specialty loans are where a single bank's menu runs out. Align places HomeStyle and FHA 203(k) renovation loans, non-warrantable condo loans, DSCR loans and standalone HELOCs through multiple wholesale lenders.

Samantha handles these files herself, from the first conversation to the closing table, with a processor supporting her behind the scenes. Complicated and impossible are not the same thing.

FAQ: Bridge loans

Here are answers to common questions about bridge loans.

How much can you borrow with a bridge loan?

Most lenders cap a bridge loan at roughly 80% of the combined value of both homes, minus existing mortgage balances. On a $400,000 home with a $200,000 mortgage, that often leaves roughly $120,000 of usable equity. The exact figure depends on your credit, your debt-to-income ratio, and whether the lender counts both properties. Our guide to cash-out refinancing shows the same loan-to-value math on a longer-term loan.

What happens if your old house doesn’t sell before the bridge loan is due?

You’re still responsible for the balloon payoff. Some lenders grant a short extension for a fee, some let you refinance into a home equity line, and some will start foreclosure on the home securing the loan. Before signing, ask in writing what happens at maturity, whether extensions are available, and what they cost. Knowing whether you’re actually in a seller’s market tells you how much of a bet you’re making.

Is a HELOC a better option than a bridge loan?

Often, yes, if you open it before listing. A HELOC usually carries a lower rate and lighter fees than a bridge loan and gives you flexible draws. The catch is that most lenders won’t open one on a home that’s already listed, so the window closes fast. A bridge loan exists for buyers who missed it. Compare both against the other paths in using home equity wisely.

How fast can you get a bridge loan?

Bridge loans can fund in days rather than the 30 to 45 days a purchase mortgage takes, because the lender is underwriting equity you already own. Speed is the main reason buyers accept the higher rate. You’ll still need a valuation, proof of income, and a title search, and the appraisal step usually sets the calendar.

The bottom line on bridge loans

A bridge loan is short-term financing (typically 6 to 12 months, and 12 months or less by federal definition) that turns equity in your current home into the down payment on your next one. Lenders generally cap borrowing near 80% of value, want at least 20% equity behind them, use interest-only payments with a balloon payoff, and price the loan as a spread over prime. You’re buying a clean, non-contingent offer and paying for it in rate, fees, and the risk that your house takes longer to sell than you planned. A HELOC opened before you list is usually cheaper.

If you’re ready to buy before you sell, talk to Align Lending. We’ll shop bridge, HELOC, and cash-out options across our wholesale lender network and show you the real cost of each side by side. Call 248-506-5727 or start online.

Footnotes:

1. Bridge loans are lender-specific products. No federal agency, and no Fannie Mae or Freddie Mac program, sets bridge loan terms. Every term, rate structure, loan-to-value cap and fee described here reflects common practice among lenders in Align Lending’s network and will vary by lender, property, borrower and market. Return to text.

2. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your loan amount, rate and terms will depend on your application, your property, your lender and market conditions, and will be itemized on your Loan Estimate and Closing Disclosure. Return to text.

3. The ability-to-repay exemption applies only to a loan meeting the regulation’s definition of a temporary or bridge loan. Whether a specific loan qualifies, and which disclosure rules apply to it, depends on how the creditor structures and documents the transaction. Ask your lender which rules govern your loan. Return to text.

4. This is general information, not legal advice. Whether the right of rescission applies to a particular bridge loan depends on the purpose of the loan, whose principal dwelling secures it, and whether the credit is consumer or business purpose. Consult a qualified attorney about your transaction. Return to text.

Figures current as of August 2026; verify with the linked source. Sources: definition of a “temporary or ‘bridge’ loan with a term of 12 months or less” and its exemption from the ability-to-repay requirements, 12 CFR § 1026.43(a)(3)(ii). Loan Estimate delivery no later than the third business day after the creditor receives the consumer’s application, and Closing Disclosure receipt no later than three business days before consummation, 12 CFR § 1026.19(e)(1)(i), (e)(1)(iii)(A) and (f)(1)(ii)(A). Exemption for credit extended primarily for a business, commercial or agricultural purpose, 12 CFR § 1026.3(a)(1). Right to rescind a credit transaction secured by the consumer’s principal dwelling until midnight of the third business day, and the exemption for a residential mortgage transaction, 12 CFR § 1026.23(a)(1), (a)(3) and (f)(1); definition of “residential mortgage transaction” as financing the acquisition or initial construction of that dwelling, 12 CFR § 1026.2(a)(24). High-cost mortgage balloon-payment carve-out for a bridge loan with a maturity of 12 months or less connected with the acquisition or construction of the consumer’s principal dwelling, 12 CFR § 1026.32(d)(1)(ii)(B). Treatment of bridge (or swing) loans in monthly debt obligations, Fannie Mae Selling Guide B3-6-05; requirement to qualify the borrower using both the current PITIA and the proposed PITIA when the current principal residence is pending sale, and the executed-sales-contract exception, Fannie Mae Selling Guide B3-6-06. Definition of the bank prime loan rate as the rate posted by a majority of the top 25 insured U.S.-chartered commercial banks by domestic assets, Federal Reserve Statistical Release H.15, Selected Interest Rates. Median days on market and existing-home sales data, National Association of REALTORS® Research and Statistics. Loan Estimate comparison guidance, Consumer Financial Protection Bureau.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Bridge loan terms, rates, fees and availability are set by individual lenders, not by any government program, and change without notice; Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, or USDA; assumption of an existing government-backed loan requires the servicer’s approval and the buyer must qualify under that agency’s rules. Confirm your figures with your Loan Estimate and Closing Disclosure and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.