Bridging Finance: Buying Before You Sell

Bridging finance lets you buy a new home before you’ve sold your current one. It’s a short-term loan that “bridges” the timing gap. When your current home sells, the bridge loan is repaid from the sale proceeds. Bridge loans are expensive, risky, and should only be used when necessary.

The mechanics: you’re buying a $700,000 new home and need settlement in 60 days. You haven’t yet sold your current $600,000 home. You can obtain a bridge loan for $600,000 (or some portion of it) to cover the purchase. Once your old home sells, the bridge loan is repaid from the sale proceeds.

Bridge loans are short-term (typically 6–12 months, sometimes shorter). Interest rates are high: 8.0–12.0% annually, often with establishment fees ($2,000–$5,000) and monthly fees ($100–$300). On a $600,000 bridge loan at 10% annual rate for six months, you’re paying roughly $30,000 in interest alone.

The risk is obvious: if your current home doesn’t sell within the bridge loan term, you’re either forced to extend the bridge (at even higher rates), sell quickly at a reduced price to pay off the bridge, or refinance the bridge into a longer-term loan. Bridge lenders have strong incentive to recover their capital fast; they won’t extend casually.

When does bridging make sense? (1) You’ve found a dream home at a below-market price and can’t wait for your current home to sell; (2) the property market in your area is moving fast, and delaying six months means missing opportunity; (3) you’re moving to a new city for a job and need housing immediately.

When does bridging NOT make sense? (1) You’re not in a hurry to buy; (2) your current home is taking longer to sell than expected (a bridge is temporary, not a solution for prolonged sales issues); (3) you can’t service both the bridge and your existing mortgage simultaneously.

Serviceability is the primary barrier. Lenders assess whether you can pay interest on the bridge ($30,000+ per year in the example above) while maintaining your existing mortgage on the current home and any payments on the new home if you’ve already settled. DTI can quickly reach 60–70% during a bridge period, forcing you to prove very strong income to qualify.

Exit velocity matters. If you’re bridging a $600,000 loan and your current home’s value is $600,000, you’re betting the home sells for at least $600,000 to cover the bridge. If the property market softens and you’re forced to sell at $570,000, you’re $30,000 short of covering the bridge, forcing you to inject equity.

Bridge lenders typically lend at 70–80% of the property value for the new home purchase. If you’re buying a $700,000 home, the bridge loan covers $490,000–$560,000 of the $700,000. You’ll need a deposit of $140,000–$210,000 to make up the difference. If you’re cashing in all your savings to bridge, you have no emergency reserve during a stressful period.

Auction and unconditional sales are important timing markers. If you’re bidding on a property at auction and need to be unconditional (committed to buy regardless of whether your current home sells), a bridge loan is your only option. This is a highest-risk scenario because you’re locked into buying even if your current home sale collapses.

Alternative strategies: (1) make your purchase offer conditional on selling your current home (allows you to exit if the sale falls through); (2) negotiate a longer settlement period on the new home to allow time to sell your current home; (3) downsize temporarily into rental accommodation while marketing your current home for a premium price, avoiding bridge costs.

Disclaimer: This article provides general information only and should not be taken as financial or legal advice. Bridge loans carry significant interest costs and refinancing risk. Consult your mortgage broker before considering a bridge.