What's a Bridge Loan and Do I Need One to Relocate?
A bridge loan is short-term financing that can help cover the gap between buying your next home and receiving the proceeds from your current one; whether you need one depends on your timing and financing. A bridge loan is a specific financing tool designed for exactly the timing gap that relocation often creates between selling one home and buying another.
How a bridge loan works
A bridge loan allows a homeowner to borrow against the equity in their current home to help fund the down payment or full purchase of a new home before the current one sells, with the loan typically repaid in full once the original home's sale closes.
Costs and terms to expect
Bridge loans typically carry higher interest rates than standard mortgages, often 1-2 percentage points above typical rates, plus additional origination fees, reflecting the short-term, higher-risk nature of the loan.
When a bridge loan isn't necessary
If a buyer has sufficient savings to cover a new down payment without touching current home equity, or can time closings closely enough to avoid needing bridge financing at all, a bridge loan's added cost isn't necessary and can be skipped entirely.
Alternatives to a traditional bridge loan
A margin loan against investment accounts, a 401(k) loan, or a HELOC set up before listing the current home can sometimes offer lower-cost alternatives to a formal bridge loan product, each with their own trade-offs and risks worth discussing with a financial advisor given the different rules and repayment structures involved.