The pros and cons of bridge loans

If you’re looking to move, that might mean you have to both buy a new home and sell your current home. In many cases, the timelines don’t always align perfectly. Some home buyers need financing to purchase their new home before they’ve sold their current home.

A bridge loan is a short-term loan that’s designed to bridge that gap in financing. With a bridge loan, you use your home equity to make a down payment on a new home or prepare your current home for sale. Let’s get into more about how bridge loans work and the pros and cons of this financing option.

Reasons for using a bridge loan for a home purchase

A bridge loan can be used to make a down payment on a new home, pay off your existing mortgage, or make updates to your current home before you list it on the market. A bridge loan also can be acquired more quickly than a full mortgage.

Here are some cases where a bridge loan can make sense:

• You need money to make a down payment on a new home before you’ve sold your current home.
• You are moving for a job and have to sell your current home on short notice.
• You close on a new home before you’ve sold your current home.
• You’re buying a home without a home sale contingency.

Bridge loan pros and cons at a glance

Bridge loans come with certain benefits and drawbacks. Here’s a list of the pros and cons.

Advantages of bridge loans

Let’s take a closer look at why bridge loans can be a helpful option for some home buyers.

Flexibility to buy a home before selling

Whether you’re relocating for work or need to find a home before the start of the school year, moving on a deadline can be stressful. It’s enough work to find a new home, make an offer, close on the purchase while you also have to sell your current home. A bridge loan gives you the flexibility to buy a new house immediately before you’ve listed your current home, found a buyer, and closed on the sale.

Avoiding temporary housing

The ability to buy a new home before you’ve sold your current home also means you don’t have to find a temporary home for the interim. Some buyers end up having to rent a house or apartment while they work on selling their previous home. A bridge loan helps you avoid multiple relocations and lets you move into your new home right away. Bridge loans can simplify a move and help reduce stress.

Waive the sales contingency

A contingency is a condition that must be met for a real estate sale to close. A home sale contingency allows the buyer to cancel from the sale if they are unable to sell their current house in time to close on a new one. In a competitive market, sellers may reject contingent offers in favor of one from a seller who doesn’t have to sell their home first.

One way to sweeten your offer is to remove this contingency and take out a bridge loan. This allows you to use the equity in your current home to make a down payment on a new home without having to sell it first.

Potential for interest-only payment terms

Some lenders allow interest-only payments on bridge loans. You’ll still owe the full principal balance, with a balloon payment scheduled at the end of the loan term. However, your monthly payment will be more affordable. This can give you breathing room if you’re still working on selling your current home. Other lenders allow you to defer your bridge loan payments until your home sells.

Cons of bridge loans

While bridge loans help homeowners cover a financing gap when buying a new home, these loans also carry downsides.

Higher borrowing costs

Bridge loans usually come with a higher interest rate and annual percentage rate (APR) when compared with standard mortgages. Lenders charge higher rates because it’s a shorter-term loan and they won't make money on long-term interest. Bridge loans also come with closing costs. Be sure to compare the interest rates from several lenders to make sure you’re getting the best deal.

Not all lenders offer bridge loans                

While it’s wise to compare rates between lenders, not every lender offers bridge loans. Rocket Mortgage® now offers bridge loans.

Home equity is required to secure a bridge loan

Bridge loans use the equity in your current home as collateral. Equity is the amount of your home you own, and it's calculated by taking your home’s current value and subtracting the amount you owe on your mortgage.

Lenders typically require that you have at least 20% equity in your home to qualify for a bridge loan. Even if you do have 20% equity, you still may not have enough equity to cover the down payment you need on your next home.

You can use our home equity calculator to estimate how much equity you have in your current home.

A bridge loan may lead to carrying the cost of two homes

While bridge loans often come with affordable monthly payments, you’ll can still end up on the hook for the costs of owning two homes if it takes a little while to sell your current home. This can include two mortgages, homeowners insurance, utilities costs, maintenance, and homeowners association fees. Though a bridge loan can give you the funds you need to make a down payment, you still may become financially stretched by the ongoing costs of both properties. If you can’t keep up with both loan payments, you run the risk of foreclosure on your previous home.

Bridge loans: Additional considerations

Here are some other factors to consider that may influence whether a bridge loan is the right financial solution to fit your needs and goals.

Assessing financial stability

If you take out a bridge loan before you’ve sold your current home, you can end up responsible for the cost of two homes at once. Before choosing this financing option, it’s important to review your budget and make sure you can afford the payments.

Some homeowners can sell their homes quickly and repay a bridge loan without issue. Others may have a hard time selling their home, depending on market conditions and the property itself. It’s wise to plan for both the best- and worst-case scenario.

Understanding the real estate market

In a seller’s market, where demand exceeds the supply of available homes, sellers have an advantage and homes move fast. This improves your odds of selling your home in a timely fashion. It also means that buyers will be facing more competition and may choose to remove contingencies to make their offer more attractive to a seller. When it comes time to make an offer on your next home, a bridge loan gives you the ability to remove the home sale contingency.

In a buyer’s market, where the supply of homes exceeds demand, you may have a harder time selling your home. Research how long other homes in the area have been on the market. If similar homes have for sale for months, you should expect to have to cover both your current mortgage and bridge loan payments at the same time. In this case, a bridge loan may be a less attractive option.

Bridge loan alternatives

Here are some other financial options to help you sell your old house while buying a new one.

Personal loans

If you aren’t comfortable using your home as collateral, you can get a personal loan without collateral. A personal loan also comes with a longer loan term - often up to seven to 12 years. So, if you’re concerned that it might take a while to sell your home, you may be more comfortable with a personal loan. However, personal loans often come with a higher interest rate and up-front fees, which can increase your overall borrowing costs. The amount you can borrow will vary depending on the lender and their eligibility requirements. Rocket Loans℠¹ offers personal loans up to $45,000.

Home equity loans²

Like a bridge loan, home equity loans use your home as collateral. However, home equity loans offer longer terms. You’d be borrowing the same amount but paying it off over a more extended period, which can give you more affordable monthly payments. This can make a home equity loan a more attractive option if you think it could take you a while to sell your current home. Because you’re using your home as collateral with a home equity loan, you’ll typically get access to lower interest rates than personal loans.

Lines of credit

If you don’t know yet exactly how much you’ll need to borrow, an alternative to borrowing a lump sum is borrowing a line of credit. This allows you to access the funds as needed over a set period, then you begin paying it back. A home equity line of credit, or HELOC, is a type of line of credit that uses your home as collateral, which can get you lower interest rates. Personal lines of credit may carry less risk but often come with higher interest rates. Rocket Mortgage currently doesn't offer HELOCs.

FAQ

If you still have questions about bridge loans, we’ve got answers.

Do you make monthly payments on a bridge loan?

Like many types of loans, you’ll typically owe a monthly payment on your bridge loan. However, some lenders allow you to make interest-only payments or defer your payments until the end of the term, when you’ll owe a balloon payment instead.

Is it hard to qualify for a bridge loan?

Bridge loans can have stricter eligibility requirements than traditional mortgages. You’ll also typically need at least 20% equity in your home to qualify.

Does a bridge loan require an appraisal?

Yes, bridge loans typically require an appraisal because you are using the equity you have in the home as collateral. The appraisal determines the current value of the house, which impacts how much equity you have.

What is the minimum credit score for a bridge loan?

While the exact eligibility criteria will depend on a lender, you’ll typically need a credit score of at least 700 to get a bridge loan.

Can you pay off a bridge loan early?

Yes, you can pay off a bridge loan early and save money on interest.

The bottom line: What are the pros and cons of bridge loans

A bridge loan is a short-term loan that can be a tool to help you bridge the financing gap between buying your new home and selling your current home. Bridge loans can be particularly useful in a seller’s market, when you’re confident you can sell your home and save on interest. Then, when it’s time to make an offer on your next home, you can remove the home sale contingency to make a more competitive offer. However, if the market it is slow and it takes you a while to sell your home, you’ll need to cover the cost of both your bridge loan and original mortgage payments.

If you think this might be the right loan option for you, you can reach out to Rocket Mortgage to apply for a bridge loan today.

¹ Rocket Mortgage, LLC, Rocket Homes Real Estate LLC, Rocket Card, LLC, RockLoans Marketplace LLC (doing business as Rocket Loans), and Rocket Money, Inc., are separate operating subsidiaries of Rocket Limited Partnership. Redfin Corporation is an affiliated business of Rocket Limited Partnership. Each company is a separate legal entity operated and managed through its own management and governance structure. Rocket Limited Partnership is an indirect, wholly owned subsidiary of Rocket Companies, Inc. (NYSE: RKT).

² 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.