What is a bridge loan used for in real estate transactions?

A bridge loan is specifically designed to provide temporary financing that allows a borrower to close on a new property before selling their current home. This type of loan helps bridge the financial gap for homeowners who need quick access to funds for purchasing a new home while awaiting the sale of their existing property. The typical use case involves a situation where the buyer's funds are tied up in their current home, yet they want to move forward with purchasing a new property to avoid missing out on a desirable opportunity.

This short-term financing option is particularly useful in competitive real estate markets where timing can be crucial. Once the homeowner sells their current home, they can then repay the bridge loan, usually with the proceeds from the sale. Bridge loans are generally structured to be paid off quickly, often within six months to a year, making them well-suited for such transitional periods in the home-buying process.

In contrast, other options such as purchasing multiple properties, refinancing existing debt, or securing a long-term mortgage do not align with the primary function of a bridge loan, as these scenarios involve different financial requirements and strategies that are not specifically intended to facilitate the quick transition between homes.