5 Short-term Bridge Loan Options for Buying a House Before You Sell Yours

Moving homes is an emotional roller coaster.

There’s the excitement of a new place to make memories, more room to grow, and settling into the neighborhood you’ve had your eye on for years.

But there’s also stress, too. 

Especially if you’re trying to buy your next home before you sell your current one. 

Carrying two homes can squeeze your budget, leave your down payment stuck in your current home’s equity, and even make your offer look weaker next to a cash buyer’s.

Luckily, this is exactly why short-term bridge loans exist. 

A short-term bridge loan lets you use your equity before you sell, so you can buy first and move once. It’s sort of like the real estate world’s version of a car trade-in, except you get the trade-in value before you hand over the keys.

But there are a few drawbacks. 

Bridge loans usually cost more than a regular mortgage, with higher rates and fees. They’re also short, often 6 to 12 months. 

So the secret to leveraging them lies in knowing which one fits your personal situation.

To help you get it right, we’re comparing the most common short-term bridge loan options, so you can see how each one stacks up.

HELOC

A home equity line of credit (HELOC) works a lot like a credit card that’s backed by your current home.

Here’s how it works. 

Your lender sets a borrowing limit based on your existing equity, and you pull from it only when you need to, like when your down payment comes due. And since you only borrow what you use, you only pay interest on that amount.

That flexibility is the main appeal, but getting access to it comes with a price tag.

Many lenders charge appraisal and closing costs just to open the line, and some even add a yearly fee to keep it open.

Once it’s open, most HELOCs carry variable rates, so the cost of what you borrow can climb if interest rates go up.

How you pay it back is different, too.

HELOC payments are often placed on top of your existing mortgage, and eventually your new mortgage. So until your old home sells, you could be covering two mortgage payments plus the HELOC itself.

In addition, many mortgage lenders won’t approve a HELOC on a home that’s already listed for sale, so you’ll need to set it up before you go to market.

Even then, a HELOC doesn’t change how a seller reads your offer, as it doesn’t necessarily remove your need for a home-sale condition.

Next to a cash buyer, that makes it look like the riskier choice.

Home Equity Loans

A home equity loan also lets you borrow against your current home.

Where it differs is how you get the money. Instead of a line you draw from, you get one lump sum at closing. So in theory, it works more like a second mortgage, with a set amount and a set repayment period.

Most home equity loans come with a fixed rate, where your monthly payments can stay the same, which can make budgeting easier while you’re juggling two homes.

But that stability has a cost.

Since you get all the money up front, you’ll have to pay interest on the full amount from day one, even if your down payment isn’t due for weeks.

You’ll also run into many of the same fees as a HELOC, like appraisal and closing costs. Plus, payments usually start right away. So until your old home sells, you could be making mortgage payments on both homes plus the home equity loan.

Then there’s the fact that many lenders won’t approve a home equity loan on a home that’s already listed, so you’ll need to apply before you go to market.

Cash-Out Refinance

A cash-out refinance swaps your current mortgage for a bigger one.

In essence, the new loan pays off the old one, and you get the difference in cash. Think of your equity as money sealed inside your walls, and a cash-out refinance as the toll that opens them up.

Let’s imagine, for example, your home is worth $900,000, and you owe $400,000. If you refinance into a $600,000 loan, you could walk away with about $200,000, minus closing costs.

Most lenders cap the new loan at about 80% of your home’s value, so how much you can take out depends on having enough equity in your home. But that’s still a lot of money in your pocket.

The big plus is simplicity.

With a cash-out refinance, you end up with one loan and one payment, instead of a second loan stacked on top of your mortgage.

If your intention is to use it as a bridge between buying homes, it’s important to refinance before you list.

From there, you can put the cash toward your next down payment. Then when your current house sells, the sale pays off the refinanced loan.

Using this strategy short-term does come with risk, so it’s best to seek the advice of a mortgage broker before you pursue it.

Traditional Bridge Loans

A traditional bridge loan is the original short-term loan.

And it’s made to do one job: cover the stretch between buying your next home and selling your old one.

Here are the basics behind how a bridge loan works. You use the money for your upcoming down payment, then when your current home sells, the sale pays the bridge loan back in full.

So the repayment terms are built right into the loan.

However, that convenience isn’t cheap, and there are a few ways bridge loan costs can add up.

Bridge loans tend to carry higher rates. On top of that, you’ll usually pay fees to set one up, like those pesky appraisal and closing costs we mentioned earlier. Not to mention, until your old home sells, you could be paying your current mortgage, your new one, and for the bridge loan all at the same time. 

Some bridge loan lenders offer interest-only bridge loan payments or let you put off payments until the sale, but either way, interest still builds each month.

Where things can get a bit scary is if your home sits on the market longer than planned, as those costs can keep climbing. And since these loans often run 6 to 12 months, you could face a deadline to pay it back before you’ve found a buyer.

The key takeaway is that a bridge loan solves the timing problem, but it doesn’t always change how a seller reads your offer.

The Contingency Buster From Seattle’s Mortgage Broker

Whether you get a bridge loan or tap your equity another way, each option above can get you the cash for your next down payment. And for many buyers, that could be enough.

But what it can’t change is the sale condition attached to your offer.

If you still need to sell your current home before you close, your offer usually comes with a home-sale contingency. And even though many sellers understand why buyers need one, next to a cash offer, you feel like the riskier option.

That’s why we created our Contingency Buster Program.

It works before you make your next offer by securing a guaranteed backup purchase contract on your current home. Think of it as a committed buyer waiting in the wings. And since your current home is already covered, your offer can go in without a home-sale contingency.

To the seller, that reads a lot like cash. And with loans that can close in as little as 10 days, you can keep pace with cash buyers on security and timing.

It also changes how you move.

Instead of selling first and moving twice, you buy and settle into your new house first. Then you list your old home vacant and staged, and sell it on your own timeline for full value.

Want to learn more? See how the Contingency Buster works.

Picking The Right Short-term Bridge Loan Before You Write An Offer

Sellers want the offer most likely to close. That’s why a clean cash offer often wins, even when it isn’t the highest.

Whether you use a bridge loan, a HELOC, a home equity loan, or a cash-out refinance, you can get the money you need for a down payment.

But your offer can still depend on selling your current home first. As we mentioned earlier, next to a cash buyer, that condition makes your offer look like the riskier pick.

The Contingency Buster takes care of both problems by securing a guaranteed backup purchase contract on your current home before you make your next offer. That way, you can make an offer without a home-sale contingency, and with loans that can close in as little as 10 days, you can keep pace with cash buyers on timing.

So before you write your next offer, schedule a call with our team. We’ll walk through your equity, your timeline, and the neighborhoods you’re eyeing, and show you how the Contingency Buster can fit your next move.

Common Short-Term Bridge Loan FAQs

How Does a Bridge Loan Work?

A bridge loan lets you use your current home’s equity before you sell it. Once the bridge loan closes, you put that money toward the down payment on your next home. That down payment is due on your closing date, so the timing matters. When your current home sells, the sale pays the bridge loan back in one lump sum. This is called a balloon payment. Most bridge loans run 6 to 12 months.

What Types of Bridge Financing Options Exist?

Bridge financing covers any short-term financing that lets you use your equity before you sell. That includes a traditional bridge loan, a HELOC, a home equity loan, and a cash-out refinance. Bridge financing is temporary. Your new mortgage is your permanent financing. Each option handles payments, rates, and fees a little differently, so the right fit depends on your situation.

How Much Does a Bridge Loan Cost?

A bridge loan usually costs more than a traditional mortgage. You’ll pay higher rates, plus fees to set it up. Until your old home sells, you could also be paying your current mortgage, your new one, and the bridge loan. If your home sits on the market longer than planned, those costs keep climbing. 

Are Bridge Loan Interest Rates Higher Than a Regular Mortgage?

Yes. Bridge loan interest rates usually run higher than a traditional mortgage. Some lenders that offer bridge loans let you make interest-only payments or put off payments until your home sells. Either way, interest still builds each month.

What Closing Costs Come With Bridge Financing?

Most options come with closing costs. With a traditional bridge loan, HELOC, or home equity loan, you’ll usually pay appraisal and closing costs just to set it up. Some HELOCs also charge a yearly fee to keep the line open. A cash-out refinance has closing costs too, like appraisal and origination fees, and they come out of the cash you walk away with.

What Are Some Bridge Loan Requirements?

It depends on which option you use, and each lender sets its own rules. The biggest factor is how much equity you have in your current property. With a HELOC, you can borrow funds up to a limit based on your equity. With a cash-out refinance, most lenders cap the new loan at about 80% of your home’s value.

Do Bridge Loan Mortgage Requirements Change Once My Home Is Listed?

They can. Many lenders won’t approve a HELOC or home equity loan on a home that’s already listed for sale. A cash-out refinance also needs to happen before you list. So if you plan to use one of these, set it up before your home goes on the market.

What Are Some Bridge Loan Alternatives?

The most common ones are a HELOC, a home equity loan, and a cash-out refinance, or our Contingency Buster Program, which we mentioned in the article. Each one can get you cash for your next down payment. But your offer may still come with a home-sale contingency, except for our Contingency Buster Program. 

How Can I Bridge the Gap Without a Home-Sale Contingency?

In a competitive market, sellers often pick the offer most likely to close, even over a higher purchase price. That’s what our Contingency Buster Program is for. Before you make your next offer, it secures a guaranteed backup purchase contract on your current home. Your offer can go in without a home-sale contingency. And with loans that can close in as little as 10 days, you can keep pace with cash buyers on timing.