What Is a Bridge Loan? Buying Before You Sell in NYC
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A bridge loan is short-term financing, usually 6 to 12 months, that lets you buy a new home before your current one sells. It’s secured by equity in your old place, and you typically need about 20% equity and strong credit. Rates run higher than a mortgage, and most are interest-only or deferred until the sale.
We represent NYC buyers, and bridge loans come up more here than almost anywhere. A co-op board wants your cash in the bank, not on the way. When your down payment is tied up in a place that hasn’t closed, a bridge loan buys the time.
It’s expensive money for a short window. Used right, that window is worth it. Our mortgages and financing hub covers where it fits among the other loan types.
How does a bridge loan work
A bridge loan lends you your own future money at a premium. The lender advances cash against the equity in your current home. You put it toward the down payment and closing costs on the new one, then repay the whole balance when the old home sells.
Two common structures:
- Pay off the old mortgage. The bridge loan clears your existing loan and hands you the leftover equity as cash. You carry one loan until the sale.
- Sit on top. You keep the old mortgage and the bridge loan is a second lien for just the down payment. Lower balance, but two payments if the sale drags.
Most bridge loans are interest-only during the term, or defer payments entirely with a balloon at closing. Funding can happen in about two weeks, far faster than a normal purchase mortgage, a pace Bankrate’s own bridge loan guide confirms too.
Bridge loan requirements, what a lender wants to see
The house has to be for sale, not just for thought. Lenders want proof you’re serious about the exit, so a signed listing agreement is close to mandatory. Beyond that:
- Equity. At least 20% in the current home, since that’s the collateral.
- Credit. A score around 680 at the low end, 700 to 720 for the best terms.
- Debt-to-income. Room to carry both homes on paper, often up to 45% to 50% with cash reserves.
- A real buyer for the new place. The bridge loan pairs with your purchase mortgage; it isn’t a standalone product.
Our guide to lowering your DTI ratio for a co-op covers what to do if carrying two homes pushes your ratio too high.
Bridge loan vs heloc for the same problem
Both borrow against your current home’s equity, and for a lot of buyers a HELOC is the cheaper tool. One is a scalpel, the other is a Swiss Army knife with a timer.
| Bridge loan | HELOC | |
|---|---|---|
| Term | 6 to 12 months, then due | Draw period of about 10 years |
| Rate | Prime to prime + 2 points | Variable, usually lower |
| Closing costs | Higher, like a mortgage | Often low or none |
| Set up before listing | Yes, works while the home is on the market | Must be open before you list, and many lenders freeze a HELOC once the home is listed |
| Best when | The sale is imminent and you need speed | You planned ahead and opened it early |
The catch with the HELOC route: most lenders won’t let you open one on a home that’s already listed. You have to plan months out. Our full HELOC vs home equity loan guide covers the mechanics.
Bridge loan alternatives
The cheapest bridge is a contingency the seller accepts. If a seller takes an offer contingent on your home sale, you need no bridge financing at all, though in a competitive NYC deal that contingency weakens your bid.
Other options, roughly in order of cost:
- A sale contingency. Free, but rarely competitive here.
- A HELOC or home equity loan, opened before you list.
- An 80/10/10 piggyback, a first mortgage at 80% plus a second at 10%, so you only bring 10% cash.
- Down payment assistance through SONYMA if you’re income-eligible.
Our mortgages and financing hub lays out where each of these sits, and the buying process guide covers how the timing works start to finish.
Why NYC buyers reach for one
Two New York facts push buyers toward bridge loans. First, a co-op board expects one to two years of mortgage and maintenance in the bank after closing. As Nicole puts it, board packages fail when buyers lack “sufficient funds to cover at least two years of maintenance in reserve,” and money still tied up in an unsold home doesn’t count. Second, a non-contingent offer wins bidding wars, and a bridge loan is what makes one safe.
There’s a cost note too. On a condo or a townhouse, a bridge loan is a mortgage on real property, so the NYC mortgage recording tax applies, roughly 1.8% to 1.925% of the amount. A co-op bridge, secured by shares, avoids that tax but is offered by fewer lenders.
What we tell a client weighing a bridge loan
It works when the sale is a question of when, not if. If your current home is well-priced in a liquid part of the market, the bridge loan is a timing tool and the extra interest is a rounding error against buying the right place. If the sale is uncertain, a bridge loan turns one hard problem into two.
We run the numbers both ways before a client commits, sale first or purchase first, with the recording tax and the bridge interest in the model. On an average purchase our commission rebate returns roughly $22,000 at closing, which offsets a good chunk of a short bridge loan’s cost. Price your own scenario on the closing cost calculators first.
Common questions
What is a bridge loan? Short-term financing, usually 6 to 12 months, that funds a new home purchase before your current home sells. It’s secured by your existing equity and repaid from the sale proceeds.
How much does a bridge loan cost? Rates run from the prime rate to about prime plus 2 points, higher than a mortgage, plus closing costs similar to a mortgage. Many are interest-only or defer payments until the sale.
How much equity do I need for a bridge loan? Usually at least 20% in your current home, since that equity is the collateral. Strong credit, around 700 or higher, gets the best terms.
Is a HELOC better than a bridge loan? Often cheaper, if you open it before listing your home. Most lenders won’t let you open a HELOC on a home that’s already on the market, which is where a bridge loan fills in.
Does a bridge loan trigger NYC mortgage recording tax? Yes, on a condo or house, calculated on the loan amount. A bridge loan against co-op shares is exempt but harder to find.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
