A bridge loan is a temporary financing option. It is designed to help homeowners “bridge” the gap between the sale of an existing home and the purchase of a new one. You can use the equity in your current home for the down payment on your next property while you wait for your home to sell.
Bridge loans are typically six months but can range from 90 days to 12 months or longer. To qualify for a bridge loan, a firm sale agreement must be in place on your existing home.
This type of financing is most common in hot real estate markets where bidding wars are the norm. They work when you need to make a quick decision about your dream home without worrying if your existing home has sold. When you do sell, you can use the proceeds to pay off the bridge loan and any interest.