Timing is everything in real estate. The right home hits the market, and suddenly, it’s a race to make an offer before someone else does. But what if your equity is tied up in your current home? Do you risk missing out—or rush into selling before you’re ready?
A bridge loan removes that dilemma, giving you the flexibility to buy first and sell when the time is right. No fire-sale pricing, no stress—just a smarter way to make your next move.
What is a bridge loan?
A bridge loan is a short-term loan that helps you “bridge” the space between buying the home you’ll start your next chapter in and selling the home that has served you. This option allows you time to fix up your current home and sell it on your terms, rather than going through the hassle of rushing around to get it sold so you can try to purchase the new house you’ve got your eye on.
Bridge loans are meant to fulfill an immediate need for capital, and as a result, are sometimes also referred to as “interim financing,” “gap loans,” or “swing loans.”
Individuals in many circumstances benefit from a bridge loan, like:
- People who can’t afford a down payment for their new house before the sale of the current house
- People whose closing date for their new home purchase is scheduled after the closing date for the sale of their current home
- People in a competitive market who risk losing out because their offer is contingent on selling their current home or meeting conditions like a clean inspection or mortgage approval.
What does a bridge loan cover?
Financing from a bridge loan covers the acquisition of the new home. This temporary funding for your down payment allows you to secure the property before it disappears from the market.
Once you sell your existing house, you secure the financing you need to cover this purchase and pay off your bridge loan.
How does a bridge loan work?
You can apply for a bridge loan from a lender and expect a faster application, approval and funding process than you would with other loan types, such as a long-term, traditional mortgage loan.
Lenders often require you to use your current home as equity for the bridge loan to protect their investment. Some lenders allow you to use other assets as collateral, such as other properties you may own.
Once approved for the loan, you would have access to the funds to purchase your new home as a cash offer. During the loan term, typically between six and 12 months, you would make interest-only payments so as not to face additional financial burdens during this transitional time.
I’m interested in securing a bridge loan. Where do I start:
The following steps should be taken in preparation of applying for a bridge loan:
- Determine the equity level of your home.
- Your home equity level is the difference between the value of your current home and the outstanding balance of your mortgage for that home.
- This will determine how much a lender allows you to borrow to cover the expense of your new home.
- Shop around for the right lender.
- Not all bridge loans are the same. Be it the duration, repayment terms, interest rates, or equity requirements, it’s important to know what each lender offers and which will best suit you. Don’t be afraid to ask questions so you clearly understand the terms and conditions of their loans.
- Begin the pre-approval process.
- In addition to your home equity level, lenders will offer preliminary loan approval based on your credit, debt-to-income ratio, income stability, and more.
After completing these steps, you are ready to complete the application process with your lender.
Thousands of borrowers have turned to Legacy for a fast, flexible bridge loan. With years of experience, we offer tailored solutions—including the ability to collateralize multiple properties to make your deal work. Plus, with no prepayment penalty, you have the freedom to repay on your terms. Connect with a Legacy loan officer today and make your next move a smooth transition.
