What does the term bridge loan means? Are people really borrowing money to buy a bridge? No, but people are purchasing homes and that means many of them are selling homes. Rarely does someone sell their house at the same time the close on their new home. Under normal circumstances people sell their old home first and use the proceeds from the sale as money down towards their new home. Sometimes, however, people wish to purchase a new home before they sell their current home.

Bridge loans cover the financing of a buyer's new house while they still own another home. These loans provide a good way to use the equity of the house you own before you sell it. While this provides a prospective home buyer with the flexibility they may need to finance their new home, bridge loans are not a perfect solution. Bridge loans can be costly due to high fees generally attached to this type of loan. They provide money for a short time, usually six months, and normally require the borrower to pay the loan in full within twelve months. If the old home has not sold within the time frame of the bridge loan, the borrowers often have to find a new finance source for both homes.

These loans are risky, they should only be used when you have to move to a new home, for example if you are relocated for employment purposes and cannot rent at your new location. The best advice is to sell either close the sale of your current home before you close the sale of your new home.