Bartos Group BLOG

When homeowners want to move without touching retirement accounts or selling investments, tapping into home equity can be the bridge that makes the next purchase possible. Mary Bartos with the Bartos Group of Premiere Plus Realty introduces a straightforward option and features guest Randy Williams with T.B.F Mortgage to explain how a bridge loan leverages the equity in a current home to fund the down payment on a new purchase. This guide explains the bridge loan approach, who benefits, and the practical steps to consider when using home equity as buying power.

What a Bridge Loan Does

A bridge loan is essentially a short-term loan that converts home equity into cash to use as a down payment on a new property. Instead of liquidating investments or juggling two mortgage payments for an extended period, a homeowner can access the value built up in the current property to move forward with a purchase immediately.

Key characteristics:

• Short term: Typical bridge loan terms are six months with a possible extension to 12 months if needed.
• Interest-only payments: Borrowers generally pay interest only while the bridge is in effect, which keeps monthly costs lower.
• Secured by current home equity: The loan uses the existing property as collateral to fund the down payment for the next home.

Who Is a Bridge Loan Best For?

Bridge loans suit homeowners who have substantial home equity but prefer not to liquidate investments or sell assets that could trigger taxes or penalties. This approach is especially appealing for:

• Buyers who want to avoid selling investments and paying capital gains or early withdrawal penalties.
• People who do not want to manage two full mortgage payments long term.
• Homeowners who need immediate access to funds to secure a new purchase that might otherwise be lost while waiting to sell.

How the Process Works in Practice

Randy Williams breaks the mechanics down simply: the homeowner borrows against their current property’s equity in a quasi-cash-out transaction. The funds are used as a down payment for the next house. When the original home sells, the bridge loan is repaid from the sale proceeds.

This sequence avoids dipping into retirement accounts or selling investments that could have tax or penalty consequences. Because the loan is short term and interest-only, monthly carrying costs remain manageable while the home is on the market.

Eligibility and Timing

Bridge loans do have qualifying conditions similar to other mortgage products. Lenders will evaluate the homeowner’s equity level, creditworthiness, and the expected saleability of the current property. Typical timelines include a six-month term with the option to extend to 12 months if selling takes longer than expected.

Extensions are available but may require additional underwriting or alternative solutions if a sale remains pending. Borrowers should plan for contingencies and work closely with their real estate and loan teams to align timelines.

Tax and Investment Considerations

One of the most important benefits is avoiding immediate taxation or penalties associated with withdrawing from retirement accounts or liquidating investments. Using home equity via a bridge loan can be considered a more tax-efficient way to fund a new purchase for many homeowners.

That said, every financial situation is different. Younger buyers who face steep penalties for tapping retirement funds often find bridge loans particularly attractive. Still, it is wise to consult a tax advisor before making a decision to confirm the most favorable route given individual circumstances.

Practical Tips Before Choosing a Bridge Loan

• Understand the repayment plan: Know how the loan will be repaid once the original home sells and what happens if the sale is delayed.
• Plan for extension risks: Have backup options if the six-month window needs extending or a sale takes longer than expected.
• Weigh tax implications: Compare the tax consequences of selling investments versus borrowing against home equity.
• Coordinate with real estate professionals: Work with an agent and lender who understand bridge loans to align sale timing and financing.

Randy Williams notes that a bridge loan can be “super affordable” because the interest-only structure keeps costs down while allowing a homeowner to move forward without liquidating assets.

Next steps

Borrowers interested in exploring this option should consult a lender experienced in bridge financing and a tax professional for tailored advice. Real estate agents familiar with bridge loans can help synchronize listing and closing timelines to minimize risk and maximize affordability.

Common Questions and Clarifications

What exactly is being borrowed against when using a bridge loan?

The homeowner borrows against the equity in the current primary residence. The loan functions like a temporary cash-out of that equity to serve as a down payment on a new property.

How long does a bridge loan last?

Standard bridge loan terms run six months, with options to extend to 12 months in many cases. Extensions may require additional paperwork or solutions if the home does not sell within the initial term.

Are payments higher because this is bridging two properties?

Bridge loans are usually interest-only, which keeps monthly payments more affordable than a full amortizing loan during the bridge period. The borrower typically pays interest until the original home sells and the bridge loan is repaid.

Will using home equity trigger taxes?

Tapping home equity through a loan is not a taxable event like withdrawing from investments or retirement accounts. However, selling investments could trigger capital gains or penalties, which is why many homeowners prefer bridging with home equity instead.

Do borrowers need to have investments or cash reserves to qualify?

No. The bridge loan relies primarily on the equity in the existing home rather than liquid investments or large cash reserves. Lenders will still assess overall financial stability, including credit and income, when determining eligibility.

Can bridge loans be extended beyond 12 months?

Extensions beyond 12 months are uncommon and typically require refinancing into a longer-term product or selling the property. Lenders may offer solutions, but borrowers should plan for the possibility of needing alternative financing if the sale is significantly delayed.

Is the bridge loan interest deductible?

Interest deductibility depends on tax rules and how the funds are used. Tax treatment varies, so consulting a tax advisor is essential to understand potential deductions related to borrowing against home equity.

Will a bridge loan affect the mortgage on the new home?

The bridge loan typically covers the down payment for the new home; the new mortgage underwrites separately. Lenders consider the bridge loan as part of the borrower’s overall liabilities during approval for the new mortgage.

Final Thoughts

Using home equity through a bridge loan is a practical, often cost-efficient way to buy a new property while avoiding the immediate sale of investments. Mary Bartos presents this option clearly and Randy Williams outlines how the structure—short term and interest-only—serves homeowners who want to avoid juggling multiple sales or facing tax penalties. For many, leveraging home equity this way can simplify the transition between homes while preserving long-term financial plans.