How Does a Bridge Loan Work When You Buy a New Home Before You Sell?
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A bridge loan is short-term financing that gives you cash for your next home's down payment and closing costs before your current home sells. You pay it off when the old home sells. The catch is that most lenders must count it as debt, plus your old mortgage and your new one, unless you already have a signed sale contract on your current home.
What is a bridge loan?
A bridge loan (also called a swing loan) ""bridges"" the gap between buying and selling. It is usually borrowed against the equity in the home you already own, so you can use that equity before you have the sale money in hand.
Fannie Mae's Selling Guide, the rulebook for loans sold to Fannie Mae, says a bridge loan ""is an acceptable source of funds"" for buying your next home if two things are true:
""The bridge loan cannot be cross-collateralized against the new property.""
""The lender must document the borrower's ability to successfully carry the payments for the new home, the current home, the bridge loan, and other obligations.""
In plain words: the bridge loan can't be tied to the new house, and your lender has to show you can afford everything at once.
How does a bridge loan work, step by step?
You apply for the bridge loan with a lender, using your current home's equity.
You use the bridge money for the down payment and closing costs on your new home.
You close on the new home with a regular mortgage, while you still own the old one.
You carry both homes for a while. That can mean your old mortgage, your new mortgage and any payment on the bridge loan.
Your old home sells, and the sale money pays off the bridge loan.
The terms vary a lot by lender. Fannie Mae says it ""does not have a specified limitation on the term of bridge loans,"" so the length is between you and the bridge lender.
How do lenders count a bridge loan in your debt-to-income ratio?
This is the part most buyers miss. Fannie Mae's rules say a bridge loan ""creates a contingent liability that must be considered part of the borrower's recurring monthly debt obligations and included in the DTI ratio calculation.""
There is one way around it. Fannie Mae ""will waive this requirement and not require the debt to be included in the DTI ratio"" if you provide ""a fully executed sales contract for the current residence, and confirmation that any financing contingencies have been cleared.""
Here is how that can change the math. These are example numbers only, for a buyer with $15,000 a month in gross income. The new-home payment is principal and interest on an example $400,000 loan at 7.24%, Freddie Mac's 30-year fixed average for the week of October 29, 2026.
Example monthly payment | No sale contract yet | Signed sale contract, financing contingencies cleared |
|---|---|---|
New home loan (example $400,000 at 7.24%) | $2,725.99 | $2,725.99 |
Current home mortgage (example) | $1,900.00 | $1,900.00 |
Bridge loan payment (example) | $1,500.00 | Not counted |
Other debts (example) | $400.00 | $400.00 |
Total counted | $6,525.99 | $5,025.99 |
Debt-to-income ratio | 43.5% | 33.5% |
Your lender decides separately how to count your current home's payment, so ask about that too. To see how DTI works in general, read our guide to the debt-to-income ratio for a mortgage.
Do federal ability-to-repay rules apply to a bridge loan?
Not to a short one. The federal ability-to-repay rule (Regulation Z, 12 CFR 1026.43) carves out ""a temporary or 'bridge' loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months.""
That exemption covers the bridge loan itself, not your new mortgage. The lender making your new home loan still has to check that you can carry all the payments, as Fannie Mae's rule above says.
Bridge loan vs. HELOC vs. home sale contingency: which fits?
Option | How it works | Watch out for |
|---|---|---|
Bridge loan | A short-term loan against your current home, repaid when it sells | Usually counted in your DTI until you have a firm sale contract |
Home equity line of credit (HELOC) | An open line of credit against your current home that you draw from | Ask how the lender will count the payment in your DTI |
Home sale contingency | Your purchase depends on selling your current home first | The seller or builder has to agree to it, so ask early |
A HELOC follows different federal rules. The ability-to-repay rule in Regulation Z does not cover ""a home equity line of credit subject to § 1026.40."" If you would rather not borrow at all, read about the home sale contingency on new construction.
What does a bridge loan cost?
There is no national average to quote, because bridge loans vary by lender. Before you sign, ask every lender the same five questions:
What is the interest rate, and is it fixed or variable?
What fees are due at closing?
Is there a monthly payment, or is interest added to the balance?
How long is the term, and can it be extended?
What happens if my home has not sold by the end of the term?
Get the answers in writing so you can compare them side by side.
What this means for new-construction buyers
A new build changes the timing. You may sign a contract months before the home is finished, and you only need the bridge money at closing. Our guide to how long it takes to build a house explains why that wait can stretch.
That wait can work in your favor. If your current home goes under contract and the buyer's financing contingency clears before you close, Fannie Mae's waiver may keep the bridge payment out of your DTI. Talk with your lender early about the order of events, and about when to lock your mortgage rate on a home that is still being built.
After your old home sells, some buyers use part of the sale money to lower their new payment with a mortgage recast.
Every builder handles timing and contingencies differently. For today's numbers on a specific community, call 561-704-0091.
Common Questions
How does a bridge loan work?
A bridge loan is short-term financing that gives you cash for your next home's down payment and closing costs before your current home sells. You pay it off when the old home sells. Fannie Mae says the bridge loan cannot be cross-collateralized against the new property.
Does a bridge loan count in my debt-to-income ratio?
Usually, yes. Fannie Mae says a bridge loan creates a contingent liability that must be included in the DTI ratio. It waives that if you provide a fully executed sales contract for your current home and confirmation that any financing contingencies have been cleared.
How long does a bridge loan last?
Terms vary by lender. Fannie Mae says it does not have a specified limitation on the term of bridge loans. Under federal rules, a bridge loan of 12 months or less is exempt from the ability-to-repay requirements.
Is a bridge loan better than a HELOC?
It depends on your lender's terms and your plans. Both borrow against the home you own. A HELOC is an open line of credit you can draw on, while a bridge loan is usually a set amount repaid when the home sells. Compare the rate, fees, term and what happens if your home doesn't sell in time.
Can I use a bridge loan on a new-construction home?
Yes, you can use bridge funds toward a new home if your lender allows it. On a new build, you need the money at closing, which may be months after you sign the contract, so plan the timing with your lender.
What happens if my old home doesn't sell before the bridge loan is due?
That depends on the loan's terms. Ask each lender before you sign what happens at the end of the term, whether it can be extended, and what that costs. Until your home sells, your lender will expect you to carry all of your payments.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: Home sale contingency on new construction · Mortgage recast · Debt-to-income ratio for a mortgage
Sources: Fannie Mae Selling Guide B3-4.3-14, Bridge/Swing Loans · Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations · 12 CFR 1026.43 · Freddie Mac PMMS
This is general information, not financial, tax or legal advice. Figures checked November 5, 2026.