What Is a Bridge Loan?

Short answer

A bridge loan is a short-term loan, usually 6 to 12 months, that lets you tap the equity in a property you own to fund the down payment on a new one before the first is sold or refinanced. It is repaid when the old property sells. Bridge loans cost more than permanent mortgages, often with interest-only payments and points, and investors also use them to close quickly on a property and then refinance into long-term financing.

Definition

A bridge loan 'bridges' the gap between buying and selling. It is secured by the current home, the new home, or both, and is designed to be paid off in months, not years.

Worked example

A family in Kendall owns a home worth $750,000 with a $300,000 mortgage and wants a $950,000 house in Palmetto Bay before selling. Bridge lender advances 70% of the current home's value minus the existing mortgage: ($750,000 x 0.70) - $300,000 = $525,000 - $300,000 = $225,000. They use $190,000 as 20% down on the new home and $35,000 for closing costs. New first mortgage: $760,000. Bridge terms: 9 months, interest-only at 10%, 1.5 points ($3,375). Monthly bridge interest: $225,000 x 0.10 / 12 = $1,875. They sell the Kendall home in month four for $745,000, pay off the $300,000 mortgage and the $225,000 bridge plus about $7,500 of interest, and keep the remainder. Illustration only; rates vary daily.

How bridge loans are structured

• Equity bridge: a loan or second lien on your current home that funds the down payment on the new one.
• Cross-collateralized bridge: one loan secured by both properties, paid down when the first sells.
• Investor bridge: a short-term first mortgage on the new property, exited by sale or a long-term refinance.
• Payments: often interest-only, sometimes deferred until payoff.
• Term: 6 to 12 months, with paid extensions.

Alternatives to a bridge loan

A HELOC on your current home opened before you list it is often cheaper if you have time. A sale contingency costs nothing but weakens your offer. Some lenders offer 'buy before you sell' programs that exclude the departing home's payment from DTI once it is listed. We compare these with a bridge for your situation; call 305-425-1990.

In South Florida

Bridge loans are popular with South Florida move-up buyers because sale contingencies are hard to win in competitive neighborhoods, and because many owners are sitting on large equity from the post-2020 run-up. Local costs to include: Florida doc stamps and intangible tax on the bridge loan itself, plus again on the new first mortgage. Lenders will count both the bridge payment and the old mortgage in your DTI unless the bridge is structured without payments or the old home is under contract. Investors buying condos cash-like with a bridge then refinance into DSCR loans. See bridge loans.