Bridge financing: how it actually works between two closings.

A client sells their current home with a closing date that lands after the closing date on the home they're buying — or occasionally with no sale in place yet at all, though that's a much harder file to finance. Either way, the equity the client is counting on to fund their new down payment isn't available yet on the day it's needed.

A bridge loan closes that gap: a short-term loan, secured against the equity in the property that's about to sell, advanced just long enough to cover the period between the two closing dates.

Because the lender's entire comfort with a bridge loan rests on one fact: a specific, dated, non-conditional payment is coming. A firm agreement of purchase and sale — one with financing, inspection, and any other conditions already waived or satisfied — gives the lender a fixed date and a known amount to lend against.

A conditional sale doesn't provide that certainty, which is why most lenders won't bridge against one. If the departing property hasn't sold at all, some lenders will still consider it, but on materially different, more conservative terms — this article assumes the far more common case of a firm sale already in hand.

The bridge amount is typically the gap between the down payment the client needs for the new purchase and the deposit they've already put down on it — not the full equity sitting in the home they're selling. If a client needs $165,000 down on the new purchase and has already paid a $17,500 deposit, the bridge loan covers the remaining $147,500, to be repaid the moment the old home's sale proceeds land.

That distinction matters for setting client expectations early: a bridge loan isn't a cash-out of the old home's full equity in advance. It's sized to cover exactly the shortfall on the new purchase, for exactly the number of days until the sale closes.

Interest accrues daily, calculated against the outstanding balance from the day the bridge funds are advanced to the day the old home's sale closes and the loan is repaid. Rates run higher than a standard mortgage — commonly quoted as prime plus roughly two to three percentage points — but because the loan is typically outstanding for a matter of weeks rather than years, the total interest cost is usually modest relative to the rate itself.

On top of interest, expect a flat lender administration fee, and for larger or longer bridges — commonly beyond roughly 120 days — a lender may also register a lien against the departing property, which adds legal fees to remove once the sale closes. None of these numbers are fixed across the industry; a broker should confirm the specific figures with the lender funding the bridge on a given file, rather than quoting a client a generic range.

Before advancing bridge funds, the lender typically requires the client's real estate lawyer to sign an assignment of the sale proceeds — a document confirming that, on closing day, the lawyer will pay the bridge loan back in full, with accrued interest and fees, directly out of the sale proceeds before releasing anything else to the client.

On the actual closing day, the two lawyers — the client's and the buyer's — settle accounts through their trust accounts. The bridge lender gets paid first, out of that settlement, which is exactly why the lender was comfortable advancing the funds days or weeks earlier: repayment was never left to the client to manage manually.

This is the scenario every bridge file has to be built to survive: the buyer of the client's current home fails to close, or closing is delayed. Because the bridge loan's entire repayment plan depends on that sale closing on the expected date, a delay or collapse turns a short-term loan into an open-ended problem — interest keeps accruing, and the lender has no repayment source until a new buyer is found.

This is also the practical argument for treating the firm-sale requirement as more than a lender formality: a broker who understands exactly how thin the safety margin is on a bridge file will flag a shaky buyer, a tight condition-removal history, or an unusually long closing gap to the client well before it becomes the lender's problem.