You found the house. Maybe it is the bigger kitchen in Manheim Township, or the smaller place closer to the grandkids in Lititz, or the farmhouse outside Ephrata with room to breathe. There is just one problem: you still own your current home, and the down payment for the next one is sitting in your walls as equity.
That gap between “found it” and “sold mine” is exactly what a bridge loan is built for. It is one of the main tools in our complete guide to buying and selling a house at the same time in Lancaster, and it is worth understanding even if you end up going a different direction.
What is a bridge loan?
In plain English, a bridge loan is a short-term loan that lets you borrow against the equity in your current home before you sell it.
A quick definition, since this word does all the heavy lifting: equity is what your home is worth minus what you still owe on it. If your home would sell for $350,000 and you owe $200,000, you have about $150,000 in equity.
The “bridge” in the name is the stretch of time between buying your new house and selling your old one. The loan covers that stretch. When the old house sells, the proceeds from that sale pay the bridge loan off, and you are left with just your new mortgage.
How does a bridge loan work, step by step?
Here is the typical sequence:
- Get prequalified and talk through the plan. You sit down with a loan officer, share your financial picture, and get a prequalification, which is a lender’s estimate of what you can borrow. For a bridge loan, the lender looks closely at your credit, your income, your assets, and how much equity sits in your current home.
- The loan is secured by your current home. This means the lender places a lien on it. A lien is simply the lender’s legal claim on the property, which is how they protect themselves. If you still have a mortgage on the current home, the bridge loan is usually a second lien, meaning it sits behind your existing mortgage in line.
- You use the funds for the new house. Most people use the bridge loan for the down payment on the next home. Some also cover closing costs with it.
- You buy the new house. You close on the new place with a regular mortgage, the same as any purchase. For a little while, you own two homes.
- You sell the old house. You list it, sell it, and move on with life.
- The bridge loan gets repaid. At the closing of your old home, part of the sale proceeds goes directly to paying off the bridge loan. Done. One house, one mortgage.
Who is a bridge loan for?
Bridge loans make the most sense for a specific kind of buyer:
- You have solid equity in your current home. Without meaningful equity, there is nothing to borrow against.
- You found the right house and cannot wait. Maybe it is the perfect fit, or the market is moving and you do not want to lose it.
- You want to make a strong offer. An offer backed by a bridge loan is not contingent on selling your current home, which sellers prefer. In plain English, a contingent offer is one that only goes through if something else happens first, like your house selling. Non-contingent offers are cleaner and more attractive.
- Your income can handle the overlap. For a few months you will have payments on both the bridge loan and the new mortgage. Lenders want to see you can manage that.
A bridge loan is probably not the answer if you have very little equity, if your income is tight, or if the thought of two payments keeps you up at night. There is no shame in that. It just means a different path, like selling first or using a contingency, fits better.
What does a bridge loan cost?
Here is the honest, general picture. A bridge loan costs more than a standard mortgage, and that is by design. It is short-term financing, usually somewhere around 6 to 12 months, and the lender is taking on extra risk, so the rate runs higher than what you would get on a 30-year fixed loan.
A few things that shape the cost:
- Interest rate: higher than a standard mortgage. How much higher depends on your credit, income, assets, and equity.
- Origination fees: most bridge loans come with an upfront fee from the lender, often calculated as a percentage of the loan amount.
- Monthly payments: many bridge loans are set up as interest-only payments, which means each month you pay just the interest and none of the principal. The full loan amount is then repaid when your old home sells.
Your exact numbers depend entirely on your qualification. Two neighbors with identical houses can get very different bridge loan terms based on credit, income, and assets. That is why general articles, including this one, can explain how it works but cannot tell you what it costs for you.
What do lenders look at?
Four things, in order of importance:
- Equity in your current home. This is the foundation. More equity means more to borrow against and less risk for the lender.
- Credit history. Your track record of paying debts on time.
- Income. Whether you can carry the payments during the overlap, shown through pay stubs, tax returns, or other documentation.
- Assets and reserves. The savings you have left after closing. Lenders like knowing you have a cushion if the old house takes an extra month or two to sell.
What are the risks? Honestly stated.
A bridge loan is a useful tool, but it is not free of risk, and you deserve the straight version:
- It costs more than waiting. The higher rate and fees are the price of speed and certainty.
- The sale could take longer than expected. Every extra month is another month of payments on two properties.
- The sale could fall through. If your buyer backs out, you still owe the bridge loan, and the clock is still ticking.
- You are betting on your sale price. If the old home sells for less than expected, the proceeds might not cover everything you planned.
None of these are reasons to rule it out. They are reasons to go in with a realistic sale price, a backup plan, and a loan officer who has done this before. Mortgage Craft helps clients buy and sell at the same time every month, so this is familiar territory for us.
Bridge loan vs. HELOC: which is right for you?
The other common way to tap your equity is a HELOC, a home equity line of credit. Here is the short comparison:
- A bridge loan is purpose-built for the gap between buying and selling. It is arranged as part of your move, and it is designed to be repaid from your sale proceeds.
- A HELOC is a reusable line of credit against your home. It often costs less to set up, and you only pay on what you actually borrow. But there is a critical timing rule: most banks will not open a HELOC once your home is listed for sale, so it has to be set up before you list.
We break the HELOC option down in detail in our companion post on using a HELOC to buy before you sell. Many Lancaster County buyers compare the two side by side before deciding.
Frequently asked questions
How long does a bridge loan last?
They are short-term by design, often somewhere around 6 to 12 months. The idea is that your old home sells well within that window and the loan is repaid from the proceeds.
Do I make monthly payments on a bridge loan?
Usually, yes. Many are set up with interest-only monthly payments, meaning you pay just the interest each month and the full balance is repaid when your current home sells.
Can I get a bridge loan if I still have a mortgage on my current home?
Yes, in many cases. The bridge loan is typically secured as a second lien behind your existing mortgage. What matters is that you have enough equity left over to borrow against.
What happens if my house does not sell before the bridge loan term ends?
This is the scenario to plan for up front. Options can include extending the loan if the lender allows it, adjusting the price, or in a tough spot, making full payments while you regroup. Talk through the backup plan with your loan officer before you sign anything.
Is a bridge loan the same as a second mortgage?
Not exactly, though they are cousins. A second mortgage is any additional loan secured by your home, and it can last for years. A bridge loan is a specific kind of short-term financing meant to be repaid quickly from a home sale.
How much can I borrow with a bridge loan?
It depends on your equity, credit, income, and assets. Lenders generally let you borrow a portion of your available equity, not all of it, because they want a cushion. Your specific number comes from a conversation about your qualification.
Does Mortgage Craft offer bridge loans?
Yes, through one of our lenders. Because every bridge loan is shaped around the individual buyer’s credit, income, and assets, the only way to know your numbers is to talk it through.
Keep reading
- The Complete Guide to Buying and Selling a House at the Same Time in Lancaster, PA
- Using a HELOC to Buy Before You Sell Your Current Home
- Buy First or Sell First? How to Decide in Lancaster County
- Home Sale Contingencies in Pennsylvania: How They Really Work
- How to Qualify for a Mortgage While You Still Own Your Home
- Coordinating Two Closings (and Rent-Back Agreements) in Pennsylvania
The only way to know what a bridge loan looks like for your situation is to talk through your credit, income, assets, and equity, and see what you qualify for. Call 717-560-0546 to talk it through. No pressure, just a straight conversation about your options.
Cooper Clark, Loan Officer, Mortgage Craft, Lancaster, PA. NMLS# 2095604. Mortgage Craft, mortgagecraft.com. Company NMLS# 130785, PA Dept. of Banking.