Buying before selling: bridge loan or HELOC?

Bridge financing is a short-term, lump-sum loan sized to the equity being held up in the client's current, unsold home — typically the deposit and closing costs needed for the new purchase. It's designed to be repaid in one shot, in full, the moment the existing home's sale closes.

The loan amount is generally calculated as the net equity in the existing home — sale price less the existing mortgage balance and estimated selling costs — up to whatever portion of that equity is needed to cover the new purchase's deposit and closing costs. It isn't sized to the full value of the new home the way a purchase mortgage is; it's specifically sized to close the timing gap, nothing more.

A HELOC is a revolving line of credit secured against home equity, similar in mechanics to a credit card — the client draws what they need, pays interest only on the amount drawn, and can pay it down and redraw as funds move. It isn't tied to a specific sale closing at all.

Most bridge lenders want a firm, unconditional agreement of purchase and sale on the client's existing home, plus financing already arranged on the new purchase — the loan exists to cover a known, dated gap, not an uncertain one. A HELOC is set up against the equity in a property the client still owns and isn't contingent on a sale at all, which is why many brokers recommend setting one up well before a client needs it, while they still qualify comfortably.

A conditional offer on the client's existing home — subject to the buyer's own financing or a home inspection, for instance — usually isn't firm enough for a bridge lender, since the sale could still fall through. If a client's sale is conditional, or hasn't been listed yet, that's often the clearest signal to steer the conversation toward a HELOC arranged in advance instead, rather than counting on bridge financing that a lender may not approve when the time comes.

Bridge loans are commonly priced at a spread over the prime rate — commonly quoted ranges run roughly prime plus 2% to prime plus 4%, though this varies by lender and file strength, plus a one-time lender setup fee. It's a short-term product, so the total dollar cost over a few weeks is often modest even at a higher rate. A HELOC typically prices closer to prime plus a smaller spread, but the client pays interest every month for as long as the balance is outstanding, which can add up if the sale drags on.

A firm sale with a known closing date, and a gap measured in weeks, is the textbook bridge-financing scenario. A client whose sale timeline is uncertain, or who wants standing access to equity for more than just this one purchase, is usually better served by a HELOC arranged in advance — see readvanceable mortgage structures for how a HELOC can be built directly into a mortgage from the start rather than added later.

It's also worth walking the client through the downside case for each: if a bridge loan's underlying sale falls through after the new purchase has already closed, the client is carrying two properties on one lump-sum loan with no fixed repayment date in sight, which is a materially worse position than a HELOC balance that simply continues accruing interest until the sale eventually closes. That downside scenario, more than the day-to-day pricing difference, is often the deciding factor for a client who's risk-averse about their sale timeline.

Either way, the closing coordination on a buy-before-sell file gets tighter, not looser — fulfillment support that's tracking both closing dates in parallel is what keeps a bridge file from becoming a scramble in its final week.