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The question: What is a bridge loan, and should I use one to buy my next home before my current home sells?
The short answer: A bridge loan is short-term financing secured by the home you own now, used to pay the down payment on your next home before the sale closes. One credit union describes its bridge loans as typically six to 12 months, and each lender sets its own term. A bridge loan makes sense when your current home should sell fast at a predictable price, you have plenty of equity, and you can carry both housing payments plus the bridge if the sale drags. If any of those three is uncertain, a HELOC, a contingent offer or a rent-back may fit better.
How does a bridge loan work?
A bridge loan turns the equity in your current home into cash before you sell. You bring that cash to the closing on the new home. Then, when the old home sells, the proceeds repay the bridge loan plus accrued interest.
Regulation Z describes a bridge loan as a temporary loan of 12 months or less, such as one to buy a new home while the borrower sells the current one (12 CFR 1026.43(a)(3)(ii)). Because of that short term, the federal ability-to-repay requirements do not apply to it. Each lender sets its own bridge loan standards.
How a bridge loan is secured
Bridge loans are secured by the home you are selling. Some lenders take a second lien behind your current mortgage. Others may combine the old mortgage and the bridge into one larger loan. Ask which the lender uses.
For a loan that Fannie Mae buys, B3-4.3-14 also bars cross-collateralization: the new home cannot also secure the bridge loan.
How bridge loan payments work
Some bridge loans charge interest only, and some require a single payment at payoff. With a single-payment loan, interest accrues and comes out of your sale proceeds. That eases the monthly strain. However, the payoff amount grows every month the house sits unsold.
A worked bridge loan example
Say you own a home worth $500,000 with a $250,000 mortgage balance. You found a $600,000 house and want to put 20% down, which is $120,000. Assume the bridge lender caps the combined loan-to-value (CLTV) ratio, meaning all loans on the home divided by its value, at 80%. That cap is an example only.
| Item | Amount |
|---|---|
| Current home value | $500,000 |
| Current mortgage balance | $250,000 |
| Example maximum CLTV | 80% |
| Maximum total debt on the current home (80% of $500,000) | $400,000 |
| Room for a bridge loan ($400,000 minus $250,000) | $150,000 |
| Bridge loan needed for 20% down on $600,000 | $120,000 |
| CLTV with the bridge ($370,000 divided by $500,000) | 74% |
In this example, the $120,000 bridge loan fits under the 80% cap with $30,000 to spare. That cushion matters, because bridge fees you finance and a lower appraisal both eat into it.
What are bridge loan rates and costs?
No public survey tracks bridge loan rates nationwide. Freddie Mac’s Primary Mortgage Market Survey covers standard mortgages only; it put the 30-year fixed at 7.18% on November 5, 2026, up from 6.22% a year earlier. Use that figure as a benchmark for your new mortgage only. So the only reliable bridge loan rate is a written quote.
What to ask for in every bridge loan quote
- The interest rate, and whether it is fixed or variable
- The APR, which folds most lender fees into one yearly figure
- An itemized list of fees: origination fee, appraisal, title and recording
- Whether interest is due monthly or deferred until payoff
- Any prepayment penalty, extension fee or maturity date
- Whether you must also take the new mortgage from that lender
For example, one credit union’s consumer page requires the new home to be financed through that credit union.
How fees change the real cost of a short loan
Take the $120,000 bridge loan from the example above. Assume an example rate of 9%, interest-only payments and $1,800 in fees. These are example figures for the math only. No lender quoted them.
| Cost item | Sale in 6 months | Sale in 10 months |
|---|---|---|
| Monthly interest ($120,000 times 9%, divided by 12) | $900 | $900 |
| Total interest | $5,400 | $9,000 |
| Fees (assumed) | $1,800 | $1,800 |
| Total bridge loan cost | $7,200 | $10,800 |
Over six months, $1,800 in fees costs as much as 3 extra percentage points of yearly interest would. Meanwhile, every extra month on the market adds another $900 in this example.
How do lenders qualify you for a bridge loan for home purchase?
Often, two lenders review your finances. First, the bridge lender looks at your equity, credit and income. Second, the lender on your new mortgage must count your other payments. That second review is where a buy before you sell plan can stall.
Conventional loans: Fannie Mae and Freddie Mac rules
Fannie Mae’s Selling Guide B3-6-05 says a bridge loan creates a contingent liability that must be counted in your debt-to-income (DTI) ratio. Likewise, B3-6-06 says the lender must count both your current and your new PITIA (principal, interest, taxes, insurance and association dues) when the old home will not close first.
Both rules have the same exception. Fannie Mae drops those payments from the DTI ratio if you provide a fully executed sales contract on the current home and proof that any financing contingencies have cleared. Separately, B3-6-02 sets the maximum DTI ratio at 50% for loans underwritten through Desktop Underwriter (DU). Freddie Mac has a similar rule (Seller/Servicer Guide 5401.2(c)(iii)) with its own conditions.
Here is how that plays out. Assume gross income of $13,000 a month, a current PITIA of $1,900, a new PITIA of $3,900, the $900 bridge payment and a $500 car payment. All five figures are assumptions.
| Scenario | Monthly debts counted | DTI ratio |
|---|---|---|
| No sales contract yet | $1,900 + $3,900 + $900 + $500 = $7,200 | 55.4% |
| Contract signed, financing contingency cleared | $3,900 + $500 = $4,400 | 33.8% |
In this example, the first case is above the 50% DU maximum, so the loan would not be eligible. Lenders can also apply stricter limits of their own, called overlays. Our guide to the debt-to-income ratio shows how lenders run this math.
If you plan to keep and rent the current home instead, different rules apply. Fannie Mae’s Announcement SEL-2026-08 sets new departing-residence rental rules for applications dated on or after December 1, 2026.
FHA loans
HUD Handbook 4000.1 says all applicable monthly liabilities must be included in the qualifying ratio (section II.A.4.b.iv(A)). Unlike Fannie Mae and Freddie Mac, the handbook has no provision that lets the lender leave out the payment on a home under contract. It also counts sale proceeds as funds only after the sale closes (II.A.4.d.iii(P)). So plan on the lender counting both payments, and ask in writing how it treats them.
FHA also insures only one principal residence per borrower, with a short list of exceptions (II.A.1.b.iii(A)(b)). If your current home has an FHA loan, a new FHA loan before it sells needs one of them, such as a job move of more than 100 miles.
FHA does accept a loan secured by real estate other than the home you are buying as a source of funds (II.A.4.d.iii(K)(1)). However, only an independent third party may provide it, not the seller, the real estate agent, the lender or another interested party. The section numbers are from Update 18, which lenders must apply by November 10, 2026.
VA loans
VA requires no down payment when the price does not exceed the home’s reasonable value (VA Pamphlet 26-7, chapter 3). Therefore many VA buyers need little or no bridge money. Still, if your current home carries a VA loan, part of your entitlement may stay in use until it sells, and a lender may then require a down payment.
VA also lets the lender disregard payments on the home you are selling if there is a reasonable basis to conclude the sale equity will cover them (chapter 4, topic 5). Ask your VA lender how it treats the bridge payment under that rule.
What can go wrong with a bridge loan?
The plan works when the old home sells on time and near the price you expect.
- You carry three payments longer than planned. Until the sale closes, you may owe the old mortgage, the new mortgage and the bridge loan.
- The home sells for less. In the example, a $500,000 sale repays $370,000 of debt and leaves $130,000 before selling costs. At $440,000, only $70,000 would remain, and accrued interest shrinks that further.
- The bridge loan comes due first. At maturity, you may need an extension, a refinance or a price cut. Since your current home secures the loan, falling behind puts that home at risk.
- Homes may take longer to sell. Nationally, NAR reported 4.8 months of supply in September 2026, up from 4.5 months a year earlier. For your area, ask your agent about days on market.
Our tips for selling your home cover pricing and prep that can shorten the time on market. On the other hand, if comparable homes near yours sit for months, price the alternatives below first.
What are the alternatives to a bridge loan?
- HELOC on your current home. A home equity line of credit lets you draw against equity and repay when the house sells. The CFPB notes that HELOCs usually carry variable rates. Ask the lender whether it will open a line on a home that is already listed.
- Home equity loan. A home equity loan pays a lump sum, usually at a fixed rate. The CFPB warns that the lender could foreclose if you cannot repay it. Compare the two in HELOC vs home equity loan, and see current home equity loan rates and requirements.
- Contingent offer. A contingent offer makes your purchase depend on selling your home. It adds no loan costs, but sellers in a busy market may pass on it.
- Sell first, then rent back. Your buyer lets you stay and pay rent for a short period after closing, so you shop with cash in hand.
- 80-10-10 piggyback with a later recast. A piggyback loan pairs an 80% first mortgage with a 10% second mortgage and 10% down. After the sale, you pay off the second loan, or ask your servicer whether it offers a recast (re-amortizing the first loan for a lower payment).
- 401(k) loan, if your plan offers one. The IRS says that if you leave your job and cannot repay, the plan treats the unpaid balance as a distribution. It is taxed as income and may face the 10% early distribution tax unless you roll it over by the tax-filing due date.
- Buy-before-you-sell programs. Some companies buy your next home with cash or guarantee a price for your current one, for a fee. Compare their total cost with a bridge loan quote.
FAQ
What is a bridge loan in simple terms?
It is a short loan against the home you already own. It gives you cash for the next down payment now, and you repay it when the old home sells.
What are bridge loan rates?
Each lender sets its own pricing, and no national index tracks it. Collect written quotes with the rate, the APR and all fees, then compare total cost over a realistic sale timeline.
How long does a bridge loan last?
Terms vary by lender; one credit union describes six to 12 months as typical. Regulation Z exempts a temporary bridge loan of 12 months or less from its ability-to-repay rules (12 CFR 1026.43(a)(3)(ii)). Fannie Mae sets no term limit, so the lender’s note controls.
Do you need good credit for a bridge loan?
Each bridge lender sets its own credit minimum. Federal ability-to-repay rules exempt bridge loans of 12 months or less. Your new mortgage also has its own credit rules, and the lender must fit all your payments within its DTI limit.
Is a HELOC better than a bridge loan?
It can be, if a lender will open the line before you list the home and you are comfortable with a variable rate. A bridge loan, by contrast, is set up to be repaid from the sale proceeds. Price both, including fees, before you decide.
Can you get a bridge loan for an FHA or VA purchase?
FHA accepts a loan secured by your other real estate as a source of funds when an independent third party provides it, and its payment generally counts in your debt ratio. VA requires no down payment in most purchases, so a VA buyer may not need a bridge loan at all.
Get two quotes before you write the offer
Start with the new mortgage. Ask your loan officer to run your DTI ratio twice: once with the old payment and bridge payment counted, and once without. For a conventional loan, that shows whether you need a signed contract on the old home before you can close.
Next, get written quotes for a bridge loan and a HELOC on your current home, and compare the total cost at 6 and 12 months. If the numbers work at 12, you can make a non-contingent offer knowing the downside.
