Table of Contents
- Key Takeaways
- What Is a Bridge Loan?
- How Do Bridge Loans Work?
- Common Features of Bridge Loans
- Bridge Loan Uses
- Buying Before Selling
- Competing in Hot Markets
- Fix-and-Flip or Investment Properties
- Cash Flow for Renovations
- Understanding the Structure and Repayment of Bridge Loans
- Advantages and Disadvantages of Bridge Loans
- When Is a Bridge Loan a Good Choice?
- What to Consider Before Getting a Bridge Loan
- Learn More About Bridge Loans
Sometimes timing doesn’t line up. You find the perfect new home, but you haven’t sold your current one yet. That’s where a bridge loan steps in. It gives you the short-term funds you need to buy now while you’re still waiting for your existing property to sell.
At Sprint Funding, we understand that real estate moves fast. We offer bridge loan solutions to help you stay competitive and avoid losing out on a property you really want. Whether you’re a homeowner or investor, this kind of financing gives you the breathing room to move forward without waiting.
Have questions about bridge loans? Reach out to our team today. We’re happy to explain how it all works.
Key Takeaways
- Bridge loans are short-term loans that help you buy a new home before your current one sells.
- They are secured by the equity in your existing home and usually last 6–12 months.
- These loans are interest-only during the term, with a balloon payment due at the end.
- Typical uses include home purchases in competitive markets, real estate investments, and covering renovation or closing costs.
- They allow flexibility but come with higher interest rates, fees, and the risk of carrying two mortgages.
- Best for borrowers with 20%+ equity, strong credit, and a clear repayment strategy.
What Is a Bridge Loan?
A bridge loan, also called gap financing or a swing loan, is a short-term loan backed by the equity in your current home. It’s used when you need to buy a new property before your existing one sells. These loans typically last from six months to a year, though some can extend up to three years depending on your lender.
Bridge loans are most commonly used in real estate, but they can also help businesses manage cash flow during transitions or delays. For most homeowners, though, the main goal is simple: secure your next home without having to rush the sale of your current one.
How Do Bridge Loans Work?
Bridge loans are built to help cover gaps. For example, say you’re buying a new home for $500,000 and you’re still waiting to sell your current one. If you’ve got $250,000 in home equity, you may qualify for a bridge loan of up to 70%–80% of that amount. That money can go toward your new down payment.
Once your current home sells, the proceeds from that sale are used to pay back the bridge loan. It’s a temporary solution that buys you time and gives you more control over both sales.
Bridge loans are often interest-only for the duration of the loan. That means lower monthly payments up front, followed by a final lump sum (also called a balloon payment) when the loan ends.
Common Features of Bridge Loans
Here’s what makes bridge loans different from standard mortgages:
- Short term: Most last from 6 to 12 months.
- Interest-only payments: You’ll likely only pay the interest during the loan’s term.
- Balloon payment: You pay back the full principal at the end.
- Higher rates: Interest usually falls between 8% and 10.5%, depending on your credit and equity.
- Equity-based: You’ll typically need at least 20% equity in your current property.
Some lenders may allow lower equity thresholds, around 15%, but strong credit and income are usually required in those cases.
Bridge Loan Uses
Bridge loans aren’t only for homeowners. They also work well in other situations:
Buying Before Selling
This is the most common reason people use a bridge loan. You can buy your new home right away and take your time selling the old one. This removes pressure and gives you room to negotiate better offers.
Competing in Hot Markets
If the market is tight, sellers might reject offers that depend on another home selling first. A bridge loan lets you make a clean offer, which sellers usually prefer. That alone can give you an edge over buyers who need contingencies.
Fix-and-Flip or Investment Properties
For real estate investors, time is everything. A bridge loan helps you move quickly on an opportunity while waiting on another investment to wrap up.
Cash Flow for Renovations
If you’re buying a property that needs work before moving in or listing, a bridge loan can help cover those costs. Renovations, closing costs, and repairs can add up, and gap financing can help keep things on track.
Understanding the Structure and Repayment of Bridge Loans
Bridge loans typically come with specific terms that differ from long-term mortgages:
- Loan Amount: Often based on a percentage (usually 70% to 80%) of your current home’s value, minus any existing mortgage.
- Disbursement: The funds may be issued as a lump sum or a line of credit.
- Interest Rates: Usually higher than conventional loans, reflecting the short-term risk.
- Closing Costs: May range from 1% to 3% of the loan amount.
Repayment terms can vary. Some bridge loans require monthly interest payments with a balloon payment at the end. Others may allow deferred payments until your home sells. If the property doesn’t sell in time, you’ll need a backup repayment method to avoid penalties or risk of default.
Advantages and Disadvantages of Bridge Loans
Before applying for a bridge loan, it’s important to understand both the benefits and the risks. Like any financing option, bridge loans come with trade-offs that may or may not suit your goals or situation.
Advantages:
- Buy before you sell
- Avoid contingent offers
- More negotiating power
Temporary cash flow support- Fast access to funds
Disadvantages:
- Higher interest rates than traditional loans
- Short repayment window
- Responsibility for two mortgages if home doesn’t sell quickly
- Closing costs and fees can add up
When Is a Bridge Loan a Good Choice?
Bridge loans are well suited for:
- Homeowners with at least 20% equity in their property
- People relocating for work who need to move quickly
- Buyers in highly competitive real estate markets
- Real estate investors flipping or buying undervalued properties
- Homeowners buying newly built homes before selling their current one
What to Consider Before Getting a Bridge Loan
Before moving forward with a bridge loan, it helps to assess:
- Your equity: Most lenders require 20% equity or more.
- Your income: Can you handle two payments temporarily?
- Your home’s marketability: Is it likely to sell soon?
- Exit strategy: Do you have a clear plan to repay the loan?
Bridge loans offer flexibility, but they’re not right for everyone. If your home is in a slower market or you’re unsure about the timeline for selling, it may be better to wait or consider other financing options.
Learn More About Bridge Loans
Bridge loans are useful tools for managing timing between buying and selling property. While they come with higher interest rates and shorter terms, they can remove the stress of selling under pressure and help you act quickly when you need to.
At Sprint Funding, we can help you understand your options and guide you through the process. If you’re considering a bridge loan, call us to learn more about how this type of financing might fit your situation.
