Bridge loan or HELOC: a short loan the sale repays, or a line you draw as you go
A bridge loan is a temporary loan, in Regulation Z's words, that finances the purchase of a new home while you plan to sell your current one, and it is paid off from that sale. A home equity line of credit (HELOC) is an open-end line of credit secured by your home that you draw on as you choose and repay under the plan's terms. Both can put the equity in the home you are leaving to work on the one you are buying. This page sets them side by side under the public rules that govern each: Regulation Z, Fannie Mae's Selling Guide for the mortgage on the new home, and the Consumer Financial Protection Bureau's HELOC booklet. California Mortgage Solutions, an independent mortgage broker in San Luis Obispo, wrote it for homeowners in San Luis Obispo County buying their next home before the current one has sold.
Side by side
| The rule | Bridge | HELOC |
|---|---|---|
| What it is | A temporary loan, in Regulation Z's words, such as a loan to finance the purchase of a new dwelling where you plan to sell your current one; the regulation names the bridge loan as its example. The CFPB's mortgage reporting rule describes the same loan: a bridge or swing loan that finances what a buyer brings to a home purchase, paid off with the proceeds from the sale of the existing home, with the permanent financing on the new home obtained separately. | A home equity line of credit (HELOC) is an open-end credit plan secured by your home. The lender sets a credit limit against your equity, you borrow against it as you choose and, as you repay, that credit can become available again under the plan's terms. With a first mortgage in place, the line is a second mortgage, paid in addition to the first. |
| What secures it | Your current home, the new home, or both. Regulation Z's commentary speaks of a loan secured by the equity in your current principal dwelling, a bridge loan for example, and of one secured by both homes. Where the bridge loan supplies funds toward a mortgage Fannie Mae will buy, its guide requires that the bridge loan not be cross-collateralized against the new property. | The home the line is opened on. Regulation Z's rules for home equity plans apply to open-end credit plans secured by the consumer's dwelling, and the CFPB describes a second mortgage as a loan you take out using your house as collateral while another loan is secured by it. |
| How long it runs, and how it is repaid | Short, by design: it is temporary financing, meant to be replaced by permanent financing or paid off, and the CFPB's example has it paid off from the sale of the existing home. Regulation Z's ability-to-repay exemption names a maximum term in months, which this page does not print; Fannie Mae's guide sets no limit of its own on a bridge loan's term. The payments until the sale are the lender's terms. | Open-end, under the plan's terms, which the lender's written disclosures must set out before the line opens. The CFPB's booklet says that if you sell your home you are generally required to pay the line off in full at once. |
| The ability-to-repay rule | Exempt, when the loan is a temporary loan of the length the rule names: Regulation Z carves such a loan out of its repayment-ability and qualified mortgage paragraphs. A bridge loan longer than that is underwritten under the rule like any home loan, and either way a lender may ask for a full income file. The carve-out is only from those paragraphs: the rule's limit on prepayment penalties still reaches a consumer bridge loan. | Outside the rule by name: Regulation Z's ability-to-repay section excludes a home equity line of credit subject to its home equity plan rules. Whether to open a line, and on what, is decided under the lender's own underwriting criteria. |
| What Fannie Mae counts in your debt ratio on the new mortgage | The bridge loan, as a contingent liability among your recurring monthly debts, unless the lender documents a fully executed sales contract for the current home and confirmation that any financing contingencies have been cleared. Fannie Mae's guide waives the debt from the ratio on that documentation and not otherwise. | The line's payment. Fannie Mae's guide counts an equity line of credit secured by real estate in the housing expense of the home it is on, and that home's housing expense counts in your debt ratio while the home is pending sale, unless the lender holds the executed sales contract and confirmation that any financing contingencies have been cleared. |
| As the funds you bring to the new home, under Fannie Mae's guide | An acceptable source of funds, on conditions: the bridge loan is not cross-collateralized against the new property, and the lender documents your ability to carry the payments on the new home, the current home, the bridge loan and your other obligations. | Borrowed funds secured by an asset, which Fannie Mae accepts for the funds you bring to closing and your reserves because they represent a return of equity; real estate is among the assets it names. The lender must document the terms of the secured loan, that the party providing it is not a party to the sale, and that the funds reached you, and must count the secured loan's payment as a debt. |
| What you must be given | On a consumer bridge loan that is a closed-end loan secured by real property, a Loan Estimate after you apply and a Closing Disclosure before closing, in the forms Regulation Z prescribes. A bridge loan for a business purpose, such as one whose money buys or carries a rental, is outside Regulation Z and carries neither. | The lender's written disclosures of its plan, and the federal brochure What You Should Know About Home Equity Lines of Credit or a suitable substitute, when you are given an application, or shortly after an application taken by telephone or through a broker. The disclosures cover the plan's payment terms, its fees, the index and margin on a variable-rate plan, and the conditions on which the lender can change the plan. |
| Your right to cancel | When you are acquiring a new principal dwelling, Regulation Z's commentary says any loan it covers that is secured by the equity in your current principal dwelling, a bridge loan for example, is rescindable whatever its purpose, and so is one secured by both homes. A loan secured only by the new home, to acquire it, is a residential mortgage transaction and carries no right to cancel. Where the right applies, you may cancel for a short time after closing, until the date on the lender's notice, and no money is disbursed until that time has passed unless you waive the right for a bona fide personal financial emergency. | On a line secured by your principal dwelling, you and any other owner whose principal dwelling it is may cancel the plan for a short time after it opens, until the date the lender's notice gives, and no money is released until that time has passed unless the right is waived for a bona fide personal financial emergency. Regulation Z names the exceptions; one is an advance that itself buys a dwelling that then secures the line, and only that advance is exempt. |
Where each one fits
Bridge can fit when
- You are buying the next home before the current one has sold, and the loan is to be repaid when it does.
- You can carry the payments on both homes and the bridge loan until the sale, which Fannie Mae's guide has the lender document when the bridge loan funds a purchase whose mortgage it will buy.
- The current home is under contract, or soon will be: Fannie Mae leaves the bridge loan out of your debt ratio once the sales contract is fully executed and the financing contingencies are cleared.
HELOC can fit when
- You want to borrow against the current home's equity as you choose, within the plan's terms, rather than take one sum.
- You are confident of keeping up with the payments; the CFPB's advice is not to consider a line otherwise, because you could lose your home.
- You accept that selling the current home generally requires paying the line off in full at once, as the CFPB's booklet says.
What the two have in common
- Both can be secured by the home you are leaving, and both are repaid in full when that home sells: the bridge loan by design, the line because a sale generally requires paying it off at once.
- Both carry Regulation Z's right to cancel when your current principal dwelling secures them, and no money is released until the period has passed unless the right is waived for a bona fide personal financial emergency.
- On the new home's mortgage, whichever of the two you used, Fannie Mae counts the current home's housing expense in your debt ratio while that home is pending sale, unless the lender holds the executed sales contract and confirmation that financing contingencies are cleared.
- Both sit outside the ability-to-repay rule's repayment paragraphs, the line by name and the bridge loan when its term is the one the rule names, and neither fact relieves the lender of its own underwriting.
Questions
What is the difference between a bridge loan and a HELOC?
A bridge loan is a temporary loan, in Regulation Z's words, that finances the purchase of a new home while you plan to sell your current one; it is secured by the current home, the new one or both, and it is paid off from the sale. A home equity line of credit (HELOC) is an open-end line of credit secured by your home that you draw on as you choose and repay under the plan's terms, and the CFPB's booklet says a sale of the home generally requires paying it off in full at once. One is a closed-end loan built around a sale; the other is a line that a sale also closes out.
Does a bridge loan count against me when I qualify for the mortgage on the new home?
On a mortgage to be sold to Fannie Mae, yes, unless the sale is far enough along. Fannie Mae's guide treats a bridge loan as a contingent liability that must be included in your debt-to-income ratio, and waives that only when the lender documents a fully executed sales contract for the current home and confirmation that any financing contingencies have been cleared. The guide also has the lender document your ability to carry the payments on the new home, the current home, the bridge loan and your other obligations, and it sets no limit of its own on the bridge loan's term.
Can I use a HELOC to buy my next home?
Fannie Mae's guide accepts borrowed funds secured by an asset, real estate among them, as funds toward a purchase whose mortgage it will buy, because they represent a return of equity; the lender documents the secured loan's terms, that its provider is not a party to the sale, and that the funds reached you, and counts the secured loan's payment as a debt. The line's payment also sits in the current home's housing expense, which counts in your debt ratio while that home is pending sale unless the executed sales contract and cleared contingencies are documented. The CFPB's booklet adds that selling the home generally requires paying the line off in full at once.
Can I cancel a bridge loan after I sign?
When you are acquiring a new principal dwelling, Regulation Z's commentary says a loan it covers that is secured by the equity in your current principal dwelling, a bridge loan for example, is rescindable whatever its purpose, and so is one secured by both homes; you may cancel for a short time after closing, until the date on the lender's notice, and no money is disbursed until that time has passed unless you waive the right for a bona fide personal financial emergency. A loan secured only by the new home, to acquire it, is a residential mortgage transaction and carries no right to cancel, and a bridge loan made for a business purpose is outside Regulation Z altogether.
Do I get a Loan Estimate on a bridge loan or a HELOC?
On a consumer bridge loan that is a closed-end loan secured by real property, yes: Regulation Z requires a Loan Estimate after you apply and a Closing Disclosure before closing. A bridge loan made for a business purpose is outside Regulation Z and carries neither. A home equity line of credit has disclosures of its own instead: the lender's written disclosures of the plan and the federal brochure, given when you are given an application or shortly after one taken by telephone or through a broker.
Sources
The publications behind the rules above. Where a row says each lender decides for itself, no publication sets that rule. The figures for the county come from the county's loan limit page, with their own sources.
- Regulation Z, 12 CFR 1026.43, Minimum standards for transactions secured by a dwelling, with its official interpretation, read October 25, 2026.
- Regulation Z, 12 CFR 1026.23, Right of rescission (closed-end credit), with its official interpretation, read October 25, 2026.
- Regulation Z, 12 CFR 1026.15, Right of rescission (open-end credit), with its official interpretation, read October 25, 2026.
- Regulation Z, 12 CFR 1026.2, Definitions and rules of construction (dwelling, residential mortgage transaction), read October 25, 2026.
- Regulation Z, 12 CFR 1026.19, Certain mortgage and variable-rate transactions (the Loan Estimate and Closing Disclosure), read October 25, 2026.
- Regulation Z, 12 CFR 1026.40, Requirements for home equity plans, read October 25, 2026.
- Regulation Z, 12 CFR 1026.3, Exempt transactions, with its official interpretation, read October 25, 2026.
- Regulation C, 12 CFR 1003.3, Exempt institutions and excluded and partially exempt transactions, official interpretation (temporary financing), read October 25, 2026.
- Regulation X, 12 CFR 1024.5, Coverage of RESPA, read October 25, 2026.
- Fannie Mae Selling Guide, B3-6-05, Monthly Debt Obligations, read October 25, 2026.
- Fannie Mae Selling Guide, B3-6-06, Qualifying Impact of Other Real Estate Owned, read October 25, 2026.
- Fannie Mae Selling Guide, B3-4.3-14, Bridge/Swing Loans, read October 25, 2026.
- Fannie Mae Selling Guide, B3-4.3-15, Borrowed Funds Secured by an Asset, read October 25, 2026.
- CFPB, What you should know about home equity lines of credit (the federal HELOC booklet), read October 25, 2026.
- CFPB, What is a home equity line of credit (HELOC)?, read October 25, 2026.
- CFPB, What is a second mortgage loan or junior-lien?, read October 25, 2026.
- CFPB, What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?, read October 25, 2026.
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