Bridge Loan Glossary

Bridge Loan

A bridge loan is a short-term real estate loan that gives borrowers access to funds between two transactions. In the most common residential scenario, it lets a California homeowner buy a new property before their current home sells, using the equity in their departing residence as collateral.

How a Bridge Loan Works

The name comes from the function: the loan bridges the timing gap between buying a new home and selling the existing one. Without a bridge loan, a homeowner who wants to move must either sell first (and risk losing the new home to another buyer) or carry two mortgages simultaneously until the old home sells.

A residential bridge loan solves this by lending against the equity in the current home. The borrower uses those funds to close on the new property. Once the current home sells, the sale proceeds pay off the bridge loan. The entire cycle typically lasts 60 to 90 days for most borrowers, though bridge loans can run for up to 11 months.

California Context

In California markets where competitive offers routinely exclude sale contingencies, a bridge loan allows the borrower to make a non-contingent offer that looks and acts like a cash offer to the seller.

Bridge Loan Key Terms in California

Loan-to-value (LTV): Most California bridge lenders lend up to 65-70% of the property's value. North Coast Financial lends up to 65-70% LTV.

Monthly payments: Bridge loans require monthly payments throughout the loan term. The payment covers the interest charge on the outstanding balance.

No prepayment penalty: Paying off the bridge loan early, when the departing home sells, does not trigger any additional fee.

Loan term: Residential bridge loans are available for up to 11 months.

Funding timeline: Owner-occupied bridge loans in California fund in 2 to 2.5 weeks due to federal TRID disclosure requirements. Investment property bridge loans can close in 5 to 7 days.

Frequently Asked Questions

Bridge loans are most commonly used by California homeowners who want to buy a new property before their current home sells. They remove the sale contingency from the purchase offer, making the buyer more competitive in markets like the Bay Area, Los Angeles, San Diego, and Orange County where contingent offers are routinely rejected.
A HELOC is a revolving line of credit that takes weeks or months to set up and requires qualifying on income. A bridge loan is funded specifically for a real estate transaction and can close in 2 to 2.5 weeks for owner-occupied properties. Bridge loans also do not require the same income documentation that a HELOC typically demands.
No. The bridge loan funds before your home sells. That is the entire purpose. You close on your new home using the bridge loan proceeds, then list and sell your current home. When it sells, those proceeds pay off the bridge loan.