Choosing a bridge loan vs. a HELOC: What's right for you?

Buying a new home when you haven't sold your current one can leave you short of cash. Most home buyers in this situation turn to either a bridge loan or a home equity line of credit on their current home to fill the gap and make sure they have enough for the down payment and closing costs on the new home. Not all lenders offer both types of loans. Rocket Mortgage^® offers bridge loans, but not HELOCs. If you're considering a bridge loan vs. a HELOC, understanding how each works is essential to deciding which one is right for you.

What is a bridge loan?

A bridge loan is short-term financing designed to hold you over until you can secure a permanent loan. Unlike a mortgage, which often has a 30-year term, a bridge loan is typically paid off within a year.

The most common use of bridge loans in real estate is when you're buying and selling a home at the same time. If you need to close on your new home before you've sold your current home, a bridge loan using the existing home as collateral can help you afford the down payment and closing costs.

Some of the key characteristics of bridge loans include:

• Loan terms from 3 – 12 months.
• Bridge loan interest rates often are the prime rate plus 2%.
• The borrower’s home is used as collateral.

Let’s say you own a condo and owe $80,000 on the mortgage. You list your home for $250,000 and find a townhouse you want to buy for $400,000. Because your condo hasn’t sold yet, you take out a 9-month bridge loan for $80,000 to cover the 20% down payment required for the new purchase. Three months later, your condo sells and you use the sale proceeds to pay off the remaining balance on the old mortgage as well as the $80,000 bridge loan, plus interest.

“Bridge loan lenders often expect repayment once the first property sells or when permanent financing becomes available,” says Baruch Mann, a personal finance expert and CEO of The Smart Investor, based in Sheridan, Wyoming. “ Think of it as a financial ladder that lets you climb from one house to another without falling into the gaps in between.”

What is a home equity line of credit?

A HELOC is a line of credit based on your home equity. Your equity establishes a credit limit, and you can borrow funds from the HELOC as needed.

Key features of a HELOC include:

• It provides access to the equity you’ve accrued in your own home.
• You usually need at least 20% equity to qualify.
• It has a draw period and a repayment period.
• Your total term can be between 20 and 30 years.

A HELOC has a draw period, when you can draw funds as needed and you’re only required to make interest payments. Once the draw period ends, the repayment period starts. You can no longer borrow from the HELOC and begin making payments that include both principal and interest.

Although the length of the term could vary, if you had a 30-year HELOC, there might be a 10-year draw period followed by a 20-year repayment period.

If you're buying a new home before your current one has sold, you can take out a HELOC on your current home to make a down payment on the new one. You would repay the HELOC when your current home sells.

For example, imagine you have $120,000 of home equity and you need $30,000 to make the down payment on your next home. You could take out a HELOC, withdraw funds, and then pay back what you borrowed as soon as you sell your home. In this way, you can use a HELOC like a bridge loan.

Keep in mind that HELOC interest rates can fluctuate. “After your draw period ends, repayments are amortized, meaning your monthly payments can rise over time since both principal and interest come due,” says Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College.

What’s the difference between a bridge loan and a HELOC?

Trying to decide between a bridge loan vs. home equity line of credit? There are several major factors you should consider.

"Keep in mind that lenders are pickier when it comes to bridge loans, and they also focus a great deal on your equity position and exit strategy," Shirshikov says. "A HELOC, however, can be more accessible if you have moderate to strong credit and can demonstrate steady earnings.”

The decision between a bridge loan or HELOC can depend on whether you need a one-time bridge to a new property or an ongoing line of credit for future flexibility, Mann says.

Alternatives to HELOCs and bridge loans

A bridge loan or a HELOC aren’t your only short-term borrowing options.

• Home equity loans: Similar to a HELOC, a home equity loan is a second mortgage. But the difference is that you get all the funds in a lump sum instead of a credit line. This works well if you know exactly how much you want to borrow. While Rocket Mortgage doesn’t currently offer HELOCs, it does offer home equity loans. ¹
• Cash-out refinance: A cash-out refinance involves taking out a new mortgage based on your home's current value, paying off the original mortgage, and keeping the rest. You repay the equity you borrow as part of your new mortgage.²
• Personal loans: Personal loans don’t require collateral and allow you to get financing based entirely on your creditworthiness. These loans often have higher interest rates.

The bottom line

A bridge loan or a HELOC can be helpful if you are buying a new home and selling your current one at the same time. The main difference is that a bridge loan has a much shorter term, while a HELOC can be a more long-term solution.

Rocket Mortgage offers bridge loans, home equity loans, and cash-out refinance loans, but not HELOCs. Eager to pursue one of these options? Apply today with Rocket Mortgage.

¹ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. This is not a commitment to lend.

² Refinancing may increase finance charges over the life of the loan.