What Is a Bridge Loan?

Fannie Mae defines a bridge or swing loan as a short-term loan secured by the borrower's principal residence, usually a home that is for sale, with proceeds used to close on a new home before the present home is sold. Individual lenders may structure products differently, including a loan against the departing residence, a second lien, or another short-term facility.

When the current home sells, sale proceeds typically pay the mortgage payoff, bridge balance and transaction costs before the remaining equity becomes available. If the sale is delayed or nets less than projected, the bridge loan still must be paid according to its documents.

Review Fannie Mae's current Bridge/Swing Loan guidance and ask each lender to explain how its product interacts with the new mortgage.

How Do Illinois Buyers Qualify?

Qualification is lender- and product-specific. Common review items include:

• Current-home value, mortgage payoff and usable equity after a lender's maximum combined loan-to-value limit;
• Credit history and score;
• Income, employment and debt-to-income ratio;
• Cash reserves for the current mortgage, bridge obligation, new mortgage, taxes, insurance and other debts;
• Appraisal, title, lien position and property eligibility;
• Whether the current home is listed, under contract, or has cleared financing contingencies;
• The exit plan and maximum bridge term.

For a new mortgage sold to Fannie Mae, the lender generally must document the ability to carry payments for the new home, current home, bridge loan and other obligations. Fannie Mae's monthly-debt guidance says the bridge liability is generally included in debt-to-income calculations, with a documented exception when the current residence has a fully executed sales contract and financing contingencies are cleared. See Monthly Debt Obligations.

What Does a Bridge Loan Cost?

There is no single current Illinois bridge-loan rate or fee schedule. Pricing can depend on the lender, lien position, credit, loan amount, combined loan-to-value ratio, property, term, interest-payment method and whether the lender also makes the new mortgage.

Ask for a written itemization of:

• Interest rate and annual percentage rate, and whether either can change;
• Origination charges, points and underwriting fees;
• Appraisal, title search, title insurance, recording and attorney or settlement charges;
• Monthly payment, interest-only period or accrued-interest treatment;
• Maturity date and any balloon payment;
• Extension, renewal, late, payoff, cancellation or prepayment charges;
• Minimum interest or unused-funds requirements; and
• Whether fees are refundable if the new purchase or current sale does not close.

Model at least three sale scenarios: on schedule, delayed, and lower net proceeds. Use the actual lender quote rather than a generic “prime plus” estimate.

Bridge Loan vs. HELOC

A HELOC is not automatically “called” merely because a home is listed, and it is not always cheaper or easier to qualify for. The agreement controls. The CFPB notes that HELOCs are generally repaid in full when the home is sold, can have variable payments, and may include upfront and ongoing fees.

Use the CFPB's HELOC booklet and HELOC fee guidance, then compare written offers from licensed lenders.

What Can Go Wrong?

• The current home sells late: overlapping payments and extension costs continue.
• The current home sells for less: net proceeds may not cover the projected bridge payoff and next-home plan.
• The appraisal is lower than expected: available loan proceeds can shrink before closing.
• The buyer's sale falls through: a pending contract may not become usable equity.
• The bridge matures first: a balloon or forced payoff can require refinancing, price reductions or other funds.
• Rates or payments change: variable-rate structures can increase carrying cost.
• The home secures the debt: default can put the current home and equity at risk.
• Two closings create operational risk: appraisal, title, wire and contingency delays can affect both transactions.

Borrow based on a conservative sale value and realistic marketing time, not the fastest recent neighborhood sale.

When Might a Bridge Loan Make Sense?

It may be worth comparing when:

• The next home is unusually difficult to replace;
• A noncontingent or faster-closing offer materially improves the purchase opportunity;
• The current home has strong verified equity and a credible sale plan;
• The household can carry all obligations without relying on an immediate sale; and
• The total bridge cost is acceptable compared with temporary housing, two moves or losing the purchase.

When Might It Not Make Sense?

• The current home needs extensive work or has uncertain marketability;
• The lender's valuation leaves little usable equity;
• The new-home budget is already tight;
• Income or reserves cannot support overlap;
• Fees, maturity or extension terms are unclear; or
• A sale contingency, longer closing, post-closing occupancy or temporary rental solves the timing issue at lower risk.

What Should You Compare Before Borrowing?

• Sell first, use temporary housing, then buy;
• Make the next purchase contingent on the Illinois sale;
• Coordinate close dates with appropriate contract protections;
• Negotiate a post-closing occupancy agreement;
• Use a HELOC or home-equity loan only after reviewing sale and payoff terms;
• Use available cash or other assets without endangering emergency reserves; or
• Delay the purchase until the current sale is more certain.

See How to Sell Your Illinois Home and Buy Out of State and the Illinois post-closing occupancy guide.