What Is a Bridge Loan?

You've found your dream home but haven't sold your current one yet. You need cash for the down payment, but your equity is locked up in your existing property. This is where bridge loans come in.

A bridge loan "bridges" the gap between buying your new home and selling your old one, allowing you to access your equity before the sale closes. But bridge loans aren't right for everyone — they're expensive, risky, and require careful planning.

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How Bridge Loans Work

The Process:

1. You find a new home and need a down payment
2. Apply for a bridge loan, borrowing against equity in your current home
3. Close on the bridge loan (usually within 2–4 weeks)
4. Use funds for the new home down payment
5. List and sell your current home
6. Repay the bridge loan from sale proceeds

Key Features:

• Loan Term: Typically 6–12 months (some offer up to 24 months)
• Interest Rates: Usually 7–10% (higher than traditional mortgages by 2–4%)
• Loan-to-Value: Usually up to 80% of current home's equity
• Payments: Interest-only monthly payments (most common)

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Bridge Loan Costs

Bridge loans are expensive. On a $300,000 bridge loan at 9%:

• Monthly interest-only payment: $2,250
• Closing costs: ~$8,200
• Total cost for 6 months: ~$21,700

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Pros of Bridge Loans

✅ Access equity immediately — Don't wait for sale to close
✅ Make non-contingent offers — Compete better in multiple-offer situations
✅ Avoid moving twice — Move directly from old home to new
✅ Time to prepare old home — Empty homes show better
✅ Control timing — Choose optimal time to list old home

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Cons of Bridge Loans

❌ Very expensive — Higher interest rates and fees than conventional financing
❌ Short-term pressure — Must sell within 6–12 months or face balloon payment
❌ Carrying two mortgages — Pay interest on bridge loan plus mortgage on new home
❌ Risk if home doesn't sell — Could face foreclosure if unable to repay
❌ Requires strong finances — Need excellent credit, significant equity, and cash reserves

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Who Should Use Bridge Loans?

You're a good candidate if:

• You have 40%+ equity in your current home
• Excellent credit (720+)
• Stable, high income that can comfortably afford both mortgage payments for 6+ months
• $50,000+ cash reserves
• You're in a hot real estate market where your current home will likely sell within 3–6 months

Avoid bridge loans if:

• Limited equity (under 30%)
• Lower credit score
• Tight budget
• Slow market where your home may take 6+ months to sell

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Bridge Loan Alternatives

1. Home Equity Line of Credit (HELOC)

Lower interest rates (8–9% vs. 9–11%), more flexible terms, longer repayment period. Best for buyers who want flexibility and don't need the entire amount immediately.

2. Cash-Out Refinance

Fixed interest rate, lower rate than bridge loan, predictable payment. Takes 30–45 days to close. Best for buyers not in immediate rush who have excellent credit.

3. 401(k) Loan

No credit check, competitive interest rate, fast funding. Reduces retirement savings. Consult with a financial advisor before borrowing from retirement.

4. Family Loan

Flexible terms, lower or no interest, fast funding. Can strain relationships. Best for buyers with willing, able family and clear written agreements.

5. Contingent Offer

No bridge loan needed, no double mortgage, coordinated timing. Sellers may reject contingent offers in hot markets. Best for balanced or buyer's markets.

6. Sell First, Temporary Housing

Know exact budget, no bridge loan needed, strong buyer position. Must move twice. Best for buyers with flexible housing options.

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Making the Right Choice

Choose a bridge loan if: You have strong finances (40%+ equity, 720+ credit, $50k+ reserves), found a perfect home that won't wait, and your current home will sell quickly.

Choose alternatives if: You want more flexibility, have time, or can't afford the carrying costs of two properties.

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Work with Experienced Professionals

Bridge loans are complex financial instruments. You need a lender experienced with bridge financing, a real estate agent who understands urgency, and a financial advisor to review your overall strategy.

For comprehensive guidance on buying and selling strategies, contact Jose Cordova Homes or call (909) 715-3800.

This article is for informational purposes only and does not constitute financial or legal advice. Last Updated: February 2026.

Jose Cordova serves buyers and sellers across Southern California. Se habla español.