The Pros and Cons of Bridge Loans

How Do Bridge Loans Typically Work?

Let’s say you own a current home (we’ll call it the “old house”). You plan to buy a new property. Your old house hasn’t sold yet, or you don’t want to wait for it to sell to make the offer on the new one.

Here’s a simplified breakdown of how a bridge loan works:

1. You apply for a bridge loan that uses the equity in the old house (and sometimes the new house) as collateral. Often, you’ll need at least ~20% equity in your existing home to qualify.
2. The bridge loan gives you funds to use as a down payment on the new property or to “buy up” the gap before the sale of the old home closes.
3. You close on the new home. The loan term might be 6–12 months (sometimes up to a year or slightly longer). The expectation is that when you sell the old house, you’ll repay the loan.
4. After the old home sells (or you secure long‑term financing/permanent mortgage), you pay off the bridge loan (often with a balloon payment). Then you move into your permanent financing (like a conventional mortgage) on the new property.

In effect: it’s an interim financing solution, not a long‑term financing strategy.

What Are the Pros of Bridge Loans?

A bridge loan is a beautiful way of not losing out on the home you want if your home hasn’t closed yet. After all, you probably want to find a roof over your head first before agreeing to move out of your existing property.

Here are some of the advantages of leveraging a bridge loan:

• You can buy a new home before your current one sells. In competitive markets, sellers may reject offers with a sale contingency. A bridge loan lets you offer without that contingency, giving you the competitive edge.
• Not having a sale contingency equals a higher chance of securing the new home. This is particularly useful in a “hot market” where homes move quickly.
• You won’t have to tap into savings or wait for your old home to close. That means you don’t miss out on opportunities.
• You may avoid private mortgage insurance (PMI) on your new home if you can reach the 20% down payment threshold via the bridge loan.
• Payments may be interest‑only initially, giving you lower monthly cash flow pressures during the short term.
• Quick closing / less waiting compared to some long‑term loans. It’s meant to act fast.
• For real estate investors, bridge loans provide flexibility (e.g., buy a fixer, renovate, then refinance into a long‐term loan).

What Are the Cons of Bridge Loans?

That said (and this is important), bridge loans are not without significant risks and drawbacks.

Here’s what you should seriously consider with bridge loan terms:

• Bridge loans tend to have higher interest rates compared to conventional mortgages. Since the loan is short‑term and higher risk to lenders, you pay more.
• Upfront fees and closing costs may be higher. You may incur appraisal costs, origination fees, closing costs, and possibly balloon payment concerns.

You may end up with two (or more) current mortgage payments at once. You may now carry your primary mortgage + a bridge loan + your new

• home’s mortgage (or soon to be). That cash flow strain can be heavy, so it’s a good idea to plan accordingly for this short-term loan.
• A short repayment period equals pressure. If your old home doesn’t sell quickly (or your permanent financing falls through), you’re stuck. The “bridge” becomes a burden.
• Collateral risk. If you default, the lender can foreclose (on your old home or collateral). You’re exposing existing equity.

Potentially limited lender options and fewer protections. Some bridge loan lenders require you to also take your new mortgage with them, reducing your ability to shop for rates. Some consumer protections (like those under RESPA) may not apply.

When Does a Bridge Loan Make Sense?

Here are scenarios where a bridge loan can be a powerful tool:

• You found your “dream home” and want to make an offer quickly, but your current house hasn’t sold yet.
• The closing date on the new home is before the sale of your current home is finalized.
• You’re in a hot market where contingent offers are being rejected.
• You have solid equity in your current home and confidence that you can sell it within a reasonable time.
• You want to avoid paying PMI on your new home by putting down ~20% (using equity from your existing home).
• You’re a real estate investor working on transition: e.g., rehab a property, sell, or refinance into permanent financing.

In these cases, the flexibility of bridge financing can tip the balance.

When Should You Steer Clear of Bridge Loans?

A bridge loan may not be a good fit if:

• Your current home is in a sluggish market, and you’re unsure how long it will take to sell.
• You don’t have sufficient equity in your current home (many lenders require 20% or more).
• You have shaky income or cash flow, so carrying multiple payments would stretch you too thin.
• Your long‐term financing (permanent mortgage) isn’t lined up yet. This increases the risk of being trapped in the bridge loan.
• You prefer a simpler, lower‑risk path (e.g., waiting for the old home to sell, taking a home equity loan instead).
• Your strategy is long‑term financing from the get‑go (rather than a temporary fix). In that case, a traditional mortgage or home equity loan may be more appropriate.

Key Takeaways For Homebuyers

• Bridge loans (aka swing loans) are powerful tools when used in the right circumstances, primarily to buy a new home before the old one sells.
• They are not long‑term loans, so you need a clear plan for repayment (i.e., selling your old home or securing permanent financing).
• If you have solid equity, strong market conditions, and pressing timing needs, a bridge loan can give you a competitive edge.
• If the sale of your old home is uncertain or the market is weak, the risks may outweigh the benefits.
• Always compare terms, shop lenders, ask about interest-only vs. principal payments, closing costs, balloon payments, and make sure you understand the exit strategy.

Our goal at Associates Home Loan is to help you evaluate: Is a bridge loan the right choice for your home purchase scenario, or would a conventional mortgage or alternative financing path be smarter?

If You’re Considering a Bridge (Swing) Loan

The Homebuyer Bridge Loans Checklist

Here are a few practical questions to ask your mortgage professional or loan officer:

Ready to See If a Bridge Loan Makes Sense for You?

Get a Bridge Loan Today at Associates Home Loan

Bridge loans (or swing loans) fill a very particular niche: when you want to act fast, you’ve located your next home, your current home is still unsold, and you’re confident you can resolve the gap in a relatively short period. They give you flexibility and buying power, but if you’re unsure, we can help provide some guidance.

Whether you’re buying your next home before selling your current one, or just exploring your options, the team at Associates Home Loan is here to help. We’ll walk you through the numbers, compare a bridge loan vs. a permanent financing solution, and show you exactly what’s possible based on your equity, timeline, and goals.

Apply today to get pre-qualified and see how much flexibility you really have!