Due to rising home prices, purchasing a new home is generally contingent on the sale of a current home. This way, the buyer can use the equity as a down payment, which makes the new mortgage affordable. The majority of buyers avoid moving until their old home sells. However, if a new job means immediate relocation, buyers may be unable to afford two mortgage payments. Fortunately, there are ways to accommodate buyers dealing with this problem. A bridge loan is intended to provide enough funds to close the gap between the closing of a new home, and the sale of the old.

Some homebuyers delay looking for a home until their current home sells. In this way, they know exactly how much equity can be used as a down payment. Additionally, this serves as a protection for the buyer because they avoid falling in love with a house and submitting a bid prematurely.

Of course, less than ideal situations tend to arise, in which buyers must move into their new home before receiving any offers on the old. Even though buyers can include a contingency within the written contract, sellers may reject the bid if eager to sell the property. With a bridge loan, buyers do not have to walk away from a great property. Rather, they can obtain a short term loan enabling them to meet the expense of paying for two properties

Bridge loans have typical terms of 30-120 days. In slow housing markets, the time is takes to sell a property fluctuates. Often times, sellers are forced to reduce the sale price to attract potential buyers. Still, even if a bid is accepted from another buyer, it can take up to 30 days or longer for a loan closing to occur.

To qualify for a bridge loan, buyers must have sufficient equity in their current home. Because these loans are repaid immediately once the old home sells, buyers are typically not required to make payments. However, if after six months the property remains on the market, the buyer may be required to begin making interest-only payments.