How to Use a HELOC as a Bridge Loan in 6 Strategic Steps
Buying a new home before selling your current one can be tricky—especially when it comes to financing. If you're short on liquidity but have equity in your existing home, a home equity line of credit (HELOC) may offer a practical, short-term solution.
Though HELOCs aren’t technically designed for bridge financing, many homeowners successfully use them that way—if they follow the right process and stay within lender guidelines.
Here’s how to strategically use a HELOC as a bridge loan in six steps:
Step 1: Estimate How Much You'll Need
Start by estimating the down payment and closing costs for your new home. If you're buying a $500,000 home and putting down 20%, you'll need $100,000. Add another 2–4% for closing costs—around $12,000 in this case.
Check your current home equity. Some lenders allow borrowing up to 80–90% of your home’s value; a few go up to 100%. You’ll also want to leave 8–10% equity untouched to cover selling costs like agent commissions.
Example Calculation:
Current home value: $400,000
Mortgage balance: $200,000
Target HELOC: $112,000 (covers $100K down + $12K closing)
Remaining equity: $88,000 (22%)—enough for selling expenses
Step 2: Get Pre-Approved With All Debts Considered
Next, apply for a pre-approval on your new mortgage—but let your lender know about the pending HELOC.
To qualify, you'll need to carry:
Your existing mortgage payment
Your new HELOC payment
Your future mortgage payment
Even though you’ll eventually sell your current home, the lender will qualify you as if you’re keeping it, since the new home purchase is non-contingent.
Example:
Current mortgage: $2,000
HELOC (at 8.5% on $112,000): $793/month
New mortgage: $2,200
Total monthly debt: $4,993
If this total fits within your debt-to-income limits, you're good to go.
Step 3: Open the HELOC
Apply for and open the HELOC in the maximum amount you might need. You’ll only pay interest on what you borrow, so having access to extra funds adds a buffer.
Ask your lender:
Are there early closure fees?
Is there a minimum draw requirement?
Will this use violate any HELOC terms?
Many lenders are fine with HELOCs being used short-term—just confirm in writing.
Step 4: Make a Non-Contingent Offer
Now you're ready to shop for your next home without needing a contingency to sell your current one—something sellers often frown upon.
This gives you a competitive edge but also adds risk. You’re committing to buy before selling, so you could temporarily carry two mortgages if your current home takes longer to sell.
Make sure your current home is in a desirable market and priced competitively.
Step 5: Close on the New Home
Complete your mortgage process and tap into your HELOC just before closing to fund the down payment and costs.
Avoid drawing funds too early—you’ll start paying interest on the borrowed amount right away. Instead, coordinate the timing so funds are available just before they’re needed.
Step 6: Sell Your Current Home and Pay Off Debts
After closing on the new home, sell your current one. If priced correctly, the proceeds should:
Pay off your original mortgage
Repay the HELOC in full
Cover selling costs
Congratulations—you’ve successfully used a HELOC as a bridge loan and transitioned into your new home without contingencies.
Alternatives to HELOC Bridge Loans
If a HELOC doesn’t work for your situation, consider these options:
1. 80/10/10 Financing on the New Home
Put 10% down with your own funds and cover another 10% with a second mortgage on the new home. When your old home sells, use proceeds to pay off the second loan.
2. Tap Into Savings or Investments
Use liquid funds to buy and reimburse yourself later. Just be mindful of tax implications if selling stocks or other assets.
3. Mortgage Recast
After selling your old home, make a lump-sum payment toward the principal on your new loan. Some lenders may recalculate your payment based on the new balance—and potentially eliminate PMI.
4. Bridge Loan Services
Some fintech and traditional companies offer dedicated bridge loan services. These may front your down payment or allow you to buy before selling for a fee or commission. Explore services that align with your timeline and budget.
Final Thought: Start by Getting a HELOC Quote
Using a HELOC as a bridge loan isn’t the traditional route—but with the right planning, it can work smoothly. Start by speaking with a lender about your current equity, income, and goals. A well-structured HELOC could be the stepping stone that helps you buy your next home without delays or contingencies.
Buying and selling can be a balancing act—use the right tools to make it seamless.
