Buying a new home before selling your current one can feel overwhelming, especially when you’re trying to avoid making a contingent offer or juggling two mortgages at once. That’s where a hard money bridge loan comes in: it lets you tap into the equity you already have to move forward with confidence.
But not all bridge loans are structured the same. Depending on goals, financial picture, and the timing of your sale, there are several ways to make the numbers work. Here’s a breakdown of how bridge loans can be structured to fit your specific situation, along with key considerations to keep in mind.
But first, here is a quick definition of what a “bridge loan” actually is:
“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.”
Option 1: Bridge Loan Secured by Current Home Only
One of the most common approaches is to take out a short-term loan secured solely by your existing property. This gives access to the equity in the current home, which can be used to help purchase the next one typically to cover the down payment, closing costs, or both.
In many cases, this structure involves refinancing the current mortgage as part of the loan, although it’s possible to keep the existing loan intact and add a hard money 2nd mortgage – depending on the lender.
This is best for homeowners with solid equity in their departing residence who want to keep the financing on their new home clean and separate.
Option 2: Cross-Collateralization (Both Homes Tied Together)
This is the most common type of hard money bridge loan. In this situation, the typical borrower owns their existing residence free and clear or has a small 1st and is replacing this home with a new home. An example of this scenario may be where a borrower owns their home outright in Los Angeles, is retiring and purchasing a smaller one in a more laid back area like San Diego. Once the Los Angeles home sells, their loan will be paid off and they will own the new home free and clear.
This allows for a higher total loan amount and often simplifies cash flow by combining the old and new mortgages under one umbrella for the short term.
This is best for buyers who need to unlock more equity than one home alone can provide, or who want to streamline their financing into one package during the transition.
Option 3: Only a loan on the home that you are purchasing.
This option works when you have enough cash to put 35% down or more, but cannot qualify for a conventional loan and carry that loan on your existing property at the same time.
As there are no income requirements on an owner occupied bridge loan, this is a viable and common option for borrowers in this situation.
The Bridge Loan Step-By-Step:
Regardless of structure, here’s how the process typically plays out:
- You get approved for a bridge loan to secure the purchase of your next home.
- Depending on the structure, your current mortgage may remain in place or be refinanced into the bridge loan.
- You use your unlocked equity to fund the new purchase.
- Once your original home sells, those proceeds go toward repaying the bridge loan.
- If needed, you refinance any remaining balance into a long-term loan.
Why Structuring Matters
Owner-occupied bridge loans aren’t just about speed, they’re about solving problems. The wrong structure can lead to cash flow issues, closing delays, or complications with future financing.
In places like Los Angeles, San Diego or the San Francisco bay area where the housing market is ultra competitive, a hard money bridge loan allows you to make a non-contingent offer with a quick close – something that will put your offer at the top of the list.
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