What Is Bridge Financing and How Does It Work?

You've sold your home and bought a new one — but the new purchase closes a week before the money from your sale arrives. How do you cover the down payment in the meantime? That's exactly the gap bridge financing is built to fill. Here's how a bridge loan works, who qualifies, and when it's the right tool for a same-time move.

Key takeaways

• Bridge financing is a short-term loan that covers the gap between buying your new home and closing the sale of your old one.
• It's secured against the equity in your sold-but-not-yet-closed home.
• Most bridge loans run a few days to a few months — they're a temporary tool, not long-term debt.
• You generally need a firm, unconditional sale on your current home to qualify.
• HOMEH coordinates your sale and purchase together and gives eligible buyers the industry's highest Cashback Rebate. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.

What bridge financing actually is

Bridge financing (also called a bridge loan) is a short-term loan that lets you access the equity in your current home before its sale officially closes. In plain terms, it bridges the timing gap between the day you have to pay for your new home and the day the proceeds from your old home actually land in your account.

It comes up constantly when you're buying and selling at the same time. If your purchase closes on, say, the 10th and your sale closes on the 17th, you need money to complete the purchase on the 10th. A bridge loan provides that money, then is repaid the moment your sale closes.

Short-term by design

Bridge loans are meant to last days to months, not years. They are repaid in full as soon as your existing home's sale closes — so the loan effectively disappears once the gap is covered.

How it works, step by step

The mechanics are simpler than they sound. Here's the typical sequence.

1. You firm up the sale of your current home (an unconditional, signed agreement with a closing date).
2. You firm up the purchase of your new home, with a closing date that lands before your sale closes.
3. Your lender approves a bridge loan based on the equity in your sold home — roughly your expected sale proceeds minus your existing mortgage and selling costs.
4. On your purchase closing day, the bridge loan funds the down payment so you can complete the deal.
5. When your sale closes, the proceeds repay the bridge loan in full, plus interest and any fees.

A firm sale is usually required

Lenders almost always want a firm, unconditional sale agreement on your existing home before approving a bridge loan. If your sale still has conditions, talk to your lender early about what they'll accept.

What it costs

A bridge loan has two cost components: interest charged for the days you borrow, and a one-time administrative or set-up fee. Because the term is so short, the total dollar cost is often modest relative to the size of the move — but rates and fees vary by lender, so always ask for the exact figures in writing before you commit.

We're not going to quote a rate here, because bridge rates move with the market and differ between lenders. To see how interest works on any loan, run scenarios through the HOMEH mortgage calculator and ask your lender for a written cost estimate specific to your closing dates.

When it makes sense (and when it doesn't)

Bridge financing is the right tool when you have a firm sale but a short timing mismatch you can't otherwise cover. It's usually not the right tool if your home hasn't sold yet, if the gap stretches into many months, or if you have enough cash to cover the down payment outright.

It also pairs naturally with porting your mortgage: you can carry your existing rate to the new home and bridge the down-payment gap at the same time. If you're still deciding the order of your move, read should you buy or sell first? first.

Coordinate your move with HOMEH

HOMEH lines up your sale and purchase so the timing gap stays as small as possible — and eligible buyers get the industry's highest Cashback Rebate. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting. Start with HOMEH's sell-and-buy service.