How does a bridge loan work for buying and selling simultaneously?
Answered by Chris Deutsch, Founder & Editor
Licensed Minnesota Realtor #20382264 ·
The short answer
A bridge loan is exactly what it sounds like — financing that bridges the gap between buying your new home and selling your old one.
On stage The 60-second answer
Captions on · Transcript below
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The longer answer
How it works:
- You borrow against the equity in your current home
- Use that money as the down payment on the new home
- When your current home sells, you pay off the bridge loan
The numbers on a typical Twin Cities bridge loan:
- Loan amount: Usually up to 80% of your current home's equity
- Interest rate: 1-2% higher than conventional mortgage rates
- Term: Usually 6-12 months
- Closing costs: 2-3% of the loan amount
Example: You own a $400K home with a $200K mortgage. Your equity is $200K. A bridge loan might let you borrow $160K (80% of equity) to use as a down payment on your new home.
The risk: If your current home doesn't sell within the bridge loan term, you're paying two mortgages plus the bridge loan payment. That's three housing payments. On a $400K home + $500K home scenario, that could be $7,000-8,000/month.
My rule: Only use a bridge loan if your current home is listed, priced correctly, and showing well. Don't take a bridge loan and THEN list. That's backwards.
The best lenders I work with offer bridge financing specifically designed for buy-sell combos. Ask me for the short list.
The next department over
What people in this spot usually ask next.
- The simultaneous buy-sellHow do I handle moving day when buying and selling on the same day?Read the answer
- The simultaneous buy-sellHow do I time selling my home and buying a new one?Read the answer
- Buying processWhat happens if my financing falls through?Read the answer
- Buying processWhat closing costs should I expect when buying in Minnesota?Read the answer
- Financing & ratesHow does financing a cabin or a second place up north work?Read the answer
- Senior transitionsThe community wants a deposit before our house has even sold. How do people manage that?Read the answer
From the editor's desk
“As Founder and Editor, I review, correct, and stand behind every answer.”
Is your situation more specific than the market? That's the one worth talking through.