Bridge Loan vs HELOC: Which Covers a Home Purchase Before You Sell?
A bridge loan is a short-term loan (usually 6 to 12 months) secured by the equity in your current home. It can fund the down payment on a new home before your old one sells and sometimes pays off your existing mortgage at the same closing.
A home equity line of credit (HELOC) uses that same equity through a revolving credit line. It typically costs less, but takes longer to open and cannot retire your existing mortgage the way a bridge loan can.
Choose a bridge loan if your closing date is only weeks away and speed matters more than price. Choose a HELOC if you have several weeks of lead time and want the lower-cost option.
Bridge Loan vs HELOC: Side-by-Side
| Bridge Loan | HELOC | |
|---|---|---|
| Speed to close | 1 to 3 weeks, built for a tight purchase deadline | 2 to 6 weeks, requires appraisal and underwriting |
| Typical rate | Prime rate plus 1 to 3 percentage points | Prime rate plus 0 to 2 percentage points |
| Term | 6 to 12 months, short and self-liquidating | 10-year draw period, then a 10 to 20-year repayment period |
| Fees and closing costs | Origination and closing fees typically 1.5% to 3% of the loan amount | Often $0 to $500; some lenders cover the appraisal |
| Secured by | Equity in your current home, sometimes cross-collateralized with the new one | Equity in your current home only |
| What it can cover | Down payment on the new home and payoff of the current mortgage in one loan | Down payment or closing costs; it does not pay off your existing mortgage balance |
| Payment structure | Often interest-only until the old home sells | Interest-only during the draw period, then principal plus interest |
| Best use case | A firm purchase deadline with an unsold current home | Equity access with a few weeks of lead time and no hard purchase deadline |
Which should you choose?
Choose a bridge loan when you have a signed purchase contract on the new home and your current one has not sold yet. Its speed, and the option to fold your existing mortgage payoff into one loan, justify the higher rate and the origination fee.
Choose a HELOC when you have at least three to four weeks before you need the funds. Your current mortgage balance also has to leave enough room under an 80% combined loan-to-value limit.
A HELOC will not retire your existing mortgage, so a buyer carrying a large balance on the departing home usually needs the bridge loan's single-loan structure instead. If your current home is already under contract with a firm closing date, the sale-timing risk behind the bridge loan's extra cost disappears.
The HELOC becomes the cheaper choice at that point. Run your own numbers through the home affordability calculator before you apply for either one.
How a Bridge Loan Works for a Home Purchase
A bridge loan is a short-term loan secured by the equity in your current home, structured to close fast enough to meet a new purchase deadline. Terms typically run 6 to 12 months, long enough to sell the old home without forcing a rushed sale.
Rates typically run at the prime rate plus 1 to 3 percentage points, and many bridge loans are interest-only, so the monthly payment stays lower while you carry two properties at once. Origination and closing fees typically run 1.5% to 3% of the loan amount, on top of the rate.
The structural advantage over a HELOC is what the loan can cover. A bridge loan can be sized to pay off your current mortgage in full and still leave enough for the down payment on the new home, all in one closing. That single-loan structure is why a bridge lender can often move faster than a standard HELOC underwriter. The lender prices the sale of your current home into the deal from day one, rather than treating it as a side fact.
How a HELOC Works for This Same Scenario
A HELOC is a revolving line of credit against your home's equity, and buyers in this situation use it to fund the down payment on a new home before their current one sells. You draw only what you need, and interest accrues only on the amount you have drawn, not the full approved line.
Rates typically run at the prime rate plus 0 to 2 percentage points, lower than a bridge loan because the lender is not pricing in the same closing-timeline risk. Closing costs are usually much lighter too. Many lenders charge $0 to $500, and some absorb the appraisal fee entirely.
The tradeoff is speed. Opening a HELOC typically takes 2 to 6 weeks, since the lender still orders an appraisal and underwrites the line the way it would any other loan. Most lenders also want a credit score of 680 or higher and a combined loan-to-value under 80% to 85% before approving it.
A HELOC has a hard limit a bridge loan does not share: it cannot pay off your existing mortgage. According to the CFPB, the 80% to 85% combined loan-to-value ceiling is standard across most HELOC lenders. That ceiling is why a homeowner with a large existing mortgage balance often finds the available HELOC amount too small to cover both a down payment and a mortgage payoff at the same time.
The Cost Comparison Over a Realistic 6- to 12-Month Hold
The cost gap between a bridge loan and a HELOC over a realistic 6- to 12-month hold comes mostly from the origination fee, not the rate difference. Take a homeowner borrowing $70,000 for a down payment, with a bridge loan priced at prime plus 2 points and a HELOC priced at prime plus 1 point. Using an illustrative prime rate of 7.5%, the bridge loan carries a 9.5% rate and the HELOC carries an 8.5% rate. Actual rates move with the Federal Reserve's benchmark and vary by lender.
Over 6 months, interest-only payments on the bridge loan total about $3,325. Add a 2% origination fee of $1,400, and the bridge loan costs roughly $4,725 for the half-year hold. The HELOC's interest over the same 6 months runs about $2,975, and with a typical $300 closing cost, its total lands near $3,275. The bridge loan costs about $1,450 more in this example.
Stretch the hold to 12 months, the outer edge of a typical bridge loan term, and the shape of the gap changes. The bridge loan's interest doubles to about $6,650, but the origination fee stays fixed at $1,400, for a total near $8,050. The HELOC's interest also doubles, to about $5,950, plus the same $300 closing cost, for a total near $6,250. The dollar gap widens to about $1,800, even as the origination fee's share of the total cost shrinks. A 1-percentage-point rate spread sounds small, but it compounds every month you carry the balance, which is what a quick glance at the two rates alone misses.
These figures are illustrative. Your own rate, loan amount, and lender fees will differ, so run your actual numbers through the closing cost calculator before comparing offers.
When to Use Each
A bridge loan and a HELOC usually come down to timeline more than budget. The deciding factor is how many weeks you have before you need the money.
A bridge loan fits when you have a signed contract on the new home and closing is fewer than three weeks away. It also fits when your current mortgage balance is large enough that a HELOC's borrowing limit would not cover both the down payment and the mortgage payoff.
A HELOC fits when you have four or more weeks before you need funds and your current home carries a modest mortgage balance relative to its value. It also fits a homeowner who wants to open a credit line early, before listing the house, and draw from it only once a purchase is close to closing.
A bridge loan is not the right tool for a homeowner who has not yet listed their current home and has no firm sale timeline. Carrying two mortgage-sized payments for an open-ended stretch turns the bridge loan's short term into a real risk instead of a bridge. In that situation, a HELOC opened well ahead of the purchase, or simply waiting to list the current home first, usually costs less and carries less risk.
If your current home sale is already under contract with a scheduled closing, both options carry less risk, and the HELOC's lower cost usually wins unless your remaining mortgage balance is too large for the line to cover. Compare both against your full purchase budget with the home affordability calculator, and see how a HELOC compares to a home equity loan if you decide you don't need the speed a bridge loan buys.
Frequently asked questions
Can I use a HELOC as a bridge loan?
Yes, and many homeowners do exactly this. You open the HELOC while you still own your current home, draw the funds for the new home's down payment when you need them, and repay the line once your current home sells. The tradeoff is that a HELOC will not pay off your existing mortgage, so this approach works best when your remaining mortgage balance is small enough that a standard down payment closes the gap without a true bridge loan's higher borrowing power.
What happens if my home doesn't sell in time on a bridge loan?
Most bridge lenders offer a short extension, often for an added fee, but you're still on the hook for the full loan plus interest until the home sells. Some lenders charge a penalty rate or convert the loan's terms after the original term expires. If your home still hasn't sold after an extension, you may need to refinance the bridge loan into a longer-term loan or lower your asking price to force a faster sale.
Is a bridge loan riskier than a HELOC?
Yes, mainly because you're carrying two mortgage-sized obligations at once against a shorter, harder deadline. A HELOC's draw-as-needed structure and its longer repayment window spread that risk out over more time. A bridge loan's compressed term means a slow home sale turns into financial pressure faster than it would with a HELOC.
Do I need to qualify for both mortgages at once?
Usually yes, for either option. Lenders typically count your current mortgage payment, your new mortgage payment, and the bridge loan or HELOC payment in your debt-to-income ratio, unless your current home is already under a signed sale contract. Some bridge lenders exclude the departing home's mortgage from that calculation once the sale contract is firm, which is one reason a bridge loan can be easier to qualify for than it first appears.
Which is cheaper, a bridge loan or a HELOC?
A HELOC is almost always cheaper on paper, with a lower rate and lower closing costs. But cheaper only matters if it closes in time. If a HELOC's 2- to 6-week timeline doesn't fit your purchase deadline, the bridge loan's higher cost buys the speed a HELOC cannot.
Can I open a HELOC before I list my home for sale?
Yes, and doing so early is often the better move. Opening the HELOC while you still show strong income and an on-time mortgage payment history works in your favor during underwriting. Waiting until after you list the home, or after an offer is pending, can make qualifying harder if a lender treats the pending sale as added uncertainty.
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Sources
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