Bridge Loans: How to Buy Before You Sell
A sale contingency is the weakest part of most offers. Bridge financing removes it using equity you already have.
Almost every move-up buyer hits the same wall. The down payment for the next house is locked inside the current one, and sellers do not want an offer that depends on your home selling first.
What a bridge loan does
It lends against the equity in your departing residence, usually to a combined 75% to 80% of that home's value, and gives you the proceeds as cash for the new purchase. Payments are interest-only. When the old house closes, the bridge is repaid in full from the sale proceeds.
The competitive advantage
In a market with multiple offers, removing the sale contingency is frequently worth more to a seller than several thousand dollars of price. We have watched contingency-free bridge-funded offers beat higher bids repeatedly, because certainty is what a seller is actually buying.
Qualifying while carrying both
Lenders will either qualify you carrying both payments, or exclude the departing residence payment when you have a signed contract on it. If you cannot support both, a departing residence exclusion or a rental income offset is usually the fix, and it needs to be planned before you write the offer.
Costs and risk
Expect an origination fee and a short term. The real risk is a slow sale, so price your departing home for the market you are actually in rather than the one you wish existed, and confirm the extension terms before you close.
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