A bridge loan (also called a swing loan) is short-term financing that lets you use the equity in your current home to buy your next one before the current home sells. You pay it off when the old house closes. In Texas, there's an extra wrinkle: the Texas Constitution strictly limits what kinds of loans can be secured by your homestead, so how a bridge loan is set up matters more here than in most states. And a bridge loan isn't the only way to buy before you sell.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. Move-up buyers in Temple, Belton, Killeen, and Georgetown ask me about this all the time. Here's how mortgage underwriting treats a bridge loan, what Texas homestead law says, and the other options to compare. Bridge loan programs vary by lender and change over time, so ask me what's available for your situation before you plan around one.
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How a Bridge Loan Works
- You borrow against the equity in your current home (or another asset) for a short term.
- You use that money for the down payment and closing costs on the new home, usually alongside a regular mortgage on the new home.
- When your current home sells, the sale proceeds pay off the bridge loan.
Federal rules treat these as short-term loans. The Consumer Financial Protection Bureau's ability-to-repay rule, Regulation Z, 12 CFR 1026.43, exempts "a temporary or 'bridge' loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months" from parts of that rule. That's one reason to read the terms closely: rate, fees, payment schedule, and what happens if the house doesn't sell within the term.
How Lenders Count a Bridge Loan on Your New Mortgage
If your new home loan is a conventional loan sold to Fannie Mae, the Fannie Mae Selling Guide sets the rules:
- It's an acceptable source of funds for the new purchase, as long as the bridge loan isn't cross-collateralized against the new property.
- You have to qualify for the payments. The lender must document your ability to carry the payments on the new home, the current home, the bridge loan, and your other obligations.
- It counts in your DTI. Fannie treats the bridge loan as a contingent liability in your debt-to-income ratio, unless you provide a fully executed sales contract on the current home and confirmation that financing contingencies have been cleared (B3-6-05).
- Same rule for the old house payment. If your current home is pending sale but won't close before the new one, both payments count unless you have that executed contract and cleared financing contingencies (B3-6-06).
- No double counting. The bridge loan amount is entered as an asset and subtracted from the net equity of the home you're selling (B3-4.4-02).
The practical takeaway: A bridge loan gets you the cash, but you still have to qualify with both house payments unless your current home is under contract with financing contingencies cleared. Get pre-approved with both payments counted before you count on it.
The Texas Homestead Wrinkle
This is where Texas is different. Under the Texas Constitution, Article XVI, Section 50, your homestead is protected from forced sale except for specific listed debts, such as:
- The purchase money used to buy it
- Property taxes
- Improvements, under the contract rules in the Constitution
- A refinance of a lien against the homestead
- A home equity loan or home equity line of credit that meets Section 50(a)(6) or 50(t)
- A reverse mortgage
Section 50(c) says no lien on a homestead is valid unless it secures one of the listed types of debt.
So if your current home is your homestead, a loan secured by it generally has to fit one of those categories. The usual fit is a Texas home equity loan, and those come with strict rules, including:
| Texas home equity rule (Sec. 50(a)(6)) | What the text says |
|---|---|
| Loan-to-value | All loans on the home can't exceed 80% of fair market value |
| Waiting period | Closing no sooner than 12 days after the application or required notice, whichever is later |
| Where you close | At the office of the lender, an attorney, or a title company |
| Payments | Substantially equal installments, at least monthly, beginning within two months, each at least the accrued interest (HELOCs follow 50(t) instead) |
| Collateral | Can't be secured by any additional real or personal property |
| Other liens | Must be the only debt on the homestead, except purchase money, taxes, and certain other debts listed in the Constitution |
My read of the text: A classic out-of-state bridge loan, with interest-only payments and one balloon payoff when the house sells, doesn't line up with the Section 50(a)(6) payment rule. That's why bridge financing in Texas often looks different. Some buyers set up a Texas HELOC before listing, some use other assets, and some lenders structure bridge products specifically for Texas. I'm not an attorney, so have your lender and a Texas real estate attorney confirm how any bridge product works with your homestead before you sign.
If the home you're leaving isn't your homestead (a rental, for example), different rules may apply. Ask before assuming either way.
Alternatives to a Bridge Loan in Texas
| Option | How it works | Trade-off |
|---|---|---|
| Sale contingency (TREC Addendum for Sale of Other Property by Buyer, No. 10-6) | Your purchase depends on getting proceeds from your home's sale by a set date. If it isn't met or waived, the contract ends and earnest money is refunded | Weaker offer. The seller can keep marketing and, after accepting another offer, require you to waive the contingency by the next day or let the contract end |
| Sell first, rent back (TREC Seller's Temporary Residential Lease, No. 15-7) | You sell your current home and lease it back from your buyer for no more than 90 days after closing | You need your next contract to line up within the lease window |
| Early move-in (TREC Buyer's Temporary Residential Lease, No. 16-7) | Lets a buyer occupy the new home for no more than 90 days before closing | The seller has to agree, and you're living there before you own it |
| HELOC before you list | Open a Texas HELOC on your current home and draw on it for the down payment | Opened under Texas home equity rules. The draw usually counts in your DTI |
| Qualify for both payments | Use savings or other assets for the down payment, then sell | Needs strong income and reserves |
Sources: TREC Addendum for Sale of Other Property by Buyer, Seller's Temporary Residential Lease, and Buyer's Temporary Residential Lease.
A note on the sale contingency: If you waive it under Addendum 10-6, you deposit the additional earnest money filled in on the form, and if you then can't close because your house didn't sell, you're in default. See my earnest money guide for what's at stake.
How Much Equity Will Count?
When your new purchase depends on your current home's sale, Fannie Mae estimates proceeds like this (B3-4.3-10):
- If a sales price is set: sales price minus (sales costs + all liens)
- If it isn't sold yet: 90% of the listing price minus all liens (the 10% adjustment can change with market conditions)
If you need the sale proceeds for the down payment and closing costs, the lender needs the settlement statement from your current home's sale before or at the same time as your new closing.
Hypothetical example: A Temple homeowner lists at $350,000 and owes $200,000. Using the 90% estimate, 90% of $350,000 is $315,000, minus the $200,000 lien, for an estimated $115,000. That's a rough planning number before any bridge loan fees or interest. Hypothetical figures for illustration only, not a quote or offer.
Questions to Ask Before You Choose a Bridge Loan
- Is it secured by my current home, the new home, or something else? How does it fit Texas homestead rules?
- What's the term, and what happens if my house hasn't sold when it ends?
- Are payments monthly, or is it all due at the end?
- What are the rate, fees, and closing costs, in writing, on a Loan Estimate?
- Will my new mortgage lender count the payment in my DTI?
- Could a HELOC, a sale contingency, or a rent-back do the same job for less?
Frequently Asked Questions
Are bridge loans available in Texas?
Some lenders offer bridge or swing loans in Texas, but programs vary by lender and change over time. Because the Texas Constitution limits the types of loans that can be secured by a homestead, ask your lender how a bridge product is structured and have a Texas real estate attorney review it before you sign.
Does a bridge loan count in my debt-to-income ratio?
Under Fannie Mae guidelines, yes, unless you provide a fully executed sales contract on your current home and confirmation that financing contingencies have been cleared. The lender must also document that you can carry the payments on the new home, the current home, the bridge loan, and your other debts.
Can I use a HELOC instead of a bridge loan in Texas?
Often, yes. Many move-up buyers open a home equity line of credit on their current home before listing it and draw on it for the down payment. A Texas HELOC must meet the home equity rules in Article XVI, Section 50 of the Texas Constitution, and the payment usually counts in your debt-to-income ratio.
How long does a bridge loan last?
Bridge loans are short-term loans, often written for 12 months or less. Federal ability-to-repay rules describe a temporary or bridge loan as one with a term of 12 months or less, such as a loan to buy a new home while you plan to sell your current one. Your exact term depends on the lender.
What is the alternative to a bridge loan when buying before selling?
Common alternatives include a home sale contingency using the TREC Addendum for Sale of Other Property by Buyer, selling first and renting back for up to 90 days with the TREC Seller's Temporary Residential Lease, opening a HELOC before listing, or qualifying for both house payments using savings.
Let's Map Out Your Move
Tell me what you owe, what you think your home will sell for, and what you want to buy. I'll show you how both payments look on paper, which options fit, and what to ask about any bridge loan before you commit. Loan programs and terms are subject to approval and availability.
Get Pre-Approved | Book a Free Consultation
Related Guides
- HELOC in Texas
- Texas Cash-Out Refinance Rules
- Debt-to-Income Ratio for a Mortgage
- Mortgage Pre-Approval in Texas
- Earnest Money in Texas
- Buy a Home
Sources
- Fannie Mae Selling Guide: B3-4.3-14 Bridge/Swing Loans, B3-6-05 Monthly Debt Obligations, B3-6-06 Qualifying Impact of Other Real Estate Owned, B3-4.4-02 Requirements for Certain Assets in DU, and B3-4.3-10 Anticipated Sales Proceeds
- Consumer Financial Protection Bureau, Regulation Z: 12 CFR 1026.43
- Texas Constitution, Article XVI, Section 50
- Texas Real Estate Commission: Addendum for Sale of Other Property by Buyer (10-6), Seller's Temporary Residential Lease (15-7), and Buyer's Temporary Residential Lease (16-7)
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval and program guidelines, and approval, rates, and program availability are not guaranteed. This article does not state that any specific bridge loan product is offered; ask about current availability. This article is general information, not legal advice. Consult a Texas real estate attorney about homestead liens. Not affiliated with or endorsed by Fannie Mae, the CFPB, or the Texas Real Estate Commission.