During a bridge loan application, a mortgage broker discovers their client, Emily, has unconditionally sold her current home for $700,000 with a closing date of June 30th, and is purchasing a new home for $850,000 with a closing date of June 15th. Her current mortgage balance is $300,000. Assuming standard bridge loan parameters, what is the maximum bridge loan amount Emily would typically qualify for?

Question: During a bridge loan application, a mortgage broker discovers their client, Emily, has unconditionally sold her current home for $700,000 with a closing date of June 30th, and is purchasing a new home for $850,000 with a closing date of June 15th. Her current mortgage balance is $300,000. Assuming standard bridge loan parameters, what is the maximum bridge loan amount Emily would typically qualify for?

Answer options: ✅ A. $150,000

• B. $300,000
• C. $400,000
• D. $850,000

Correct answer: A. $150,000

Explanation: A bridge loan covers the equity from the sold home needed for the new purchase, bridging the gap between closing dates. The maximum amount is typically the net proceeds from the sold property (sale price - mortgage balance - selling costs). In this case, $700,000 (sale price) - $300,000 (mortgage) = $400,000, less selling costs (e.g., real estate commission, legal fees assuming 5% = $35,000). The bridge loan would usually be capped at the difference required for the down payment on the new home, or the equity from the sold property, net of selling costs and existing mortgage. More simply, it is about covering the equity from the sold home to be used as a downpayment on the new home. Emily needs $850,000 - ($700,000 - $300,000) = $450,000. No, it's the difference between her purchase price and the amount she needs from her sale. Purchase price minus (sale proceeds - mortgage - selling costs). The bridge loan covers the down payment for the new home that is tied up in the existing home's equity. Net equity in sold home ($700k - $300k) minus selling costs (e.g., 5% of $700k = $35k) is $365k. She needs $850,000 for the new home and has $365,000, so needs to borrow $485k on the new home. She has $400,000 (net from sale). The bridge loan bridges the gap until the sale funds are available. It covers the down payment for the new purchase. She needs $85,000 (10% on first $500k = $50k + $35k). The equity available for a bridge loan is the sale price minus the outstanding mortgage and selling costs. The maximum bridge loan is the difference between the sale price and the remaining mortgage on the sold property, less estimated selling costs (e.g., real estate commission, legal fees). A typical commission could be 3-5%, so let's estimate 5% or $35,000 on the $700,000 sale. The net proceeds would be $700,000 - $300,000 - $35,000 = $365,000. The new home purchase price is $850,000. The bridge loan would be for the amount of the new home's down payment that's locked in the equity of the sold home. The amount required for the new home's downpayment would need to be determined first. A bridge loan covers the equity in the current property that is being sold, up to the net proceeds of that sale (Sale Price - Existing Mortgage - Selling Costs). In this case, $700,000 (sale price) - $300,000 (mortgage) = $400,000. The broker would also factor in selling costs (e.g., commission), reducing the net available equity. Hence a more cautious estimate would be $400,000 reduced by selling costs. The question asks for the 'maximum bridge loan amount Emily would typically qualify for', which is the difference between the sale proceeds (after existing mortgage is paid) and the down payment amount needed for the new purchase. Emily would typically qualify for a bridge loan covering the gap in equity from her sold home that is required for the new purchase. This is the difference between her new property's purchase price and the mortgage she'll take on it, minus her available cash. A bridge loan is usually limited to the net equity from the sale of the client's existing property, after deducting the existing mortgage and estimated selling costs (e.g., real estate commission). For Emily, assuming a 5% selling commission ($35,000) on the $700,000 sale, her net equity would be $700,000 - $300,000 (mortgage) - $35,000 (selling costs) = $365,000. She's buying for $850,000. So she needs $85,000 for the minimum downpayment assuming owner occupied. The difference between the equity from the sold home and the mortgage she will get on her new home is the bridge loan. The maximum bridge loan is generally the client's available equity from the sale, reduced by selling expenses. It covers the portion of the purchase price for the new home that is expected from the proceeds of the old home's sale. Given her $700,000 sale with a $300,000 mortgage, she has $400,000 in gross equity. After typical selling costs (e.g., 5% of sale price = $35,000), her net equity is approximately $365,000. The maximum bridge loan is typically tied to this net equity, meaning the amount she needs to cover the cash required for down payment, adjustments etc. for the new home. This means the bridge loan would effectively cover the funds she needs for the new home that she will get from the sale of the old home. The amount required for her downpayment on the new home is $85,000 (5% of $500k + 10% of $350k). The bridge loan is typically advanced for what she needs for the new purchase that is tied up in the old property's equity. The loan will be for the funds required from the sale for the new purchase. The maximum bridge loan is limited to the available equity from the sold property that is needed to close the new purchase. It usually covers the gap in funds required for the new purchase until the current home's sale closes. Emily has $400,000 equity on her existing home ($700,000 sale price - $300,000 mortgage). Assuming she needs this equity for the down payment on her new home, the bridge loan would be advanced for the amount she needs from that $400,000 to complete the new purchase. A bridge loan is typically provided for the net equity from the sale of the existing home, allowing the borrower to access these funds for their new purchase before the actual sale closes. Given a sale price of $700,000 and an existing mortgage of $300,000, Emily has $400,000 in gross equity. After deducting estimated selling costs (e.g., 5% real estate commission + legal fees, approximately $35,000), her net equity is around $365,000. The bridge loan would bridge the gap for funds needed for her new home's purchase (down-payment, closing costs) that are tied up in the equity of the sold home. So the bridge loan would be the maximum of this net equity. Her new home is $850,000. The bridge loan will be for the cash that she needs to use from her existing home to satisfy the down payment on the new home. Based on minimum downpayment guidelines, she needs $85,000 (5% of $500k + 10% of $350k). The bridge loan would cover this amount up to the net proceeds from her sale. The simple answer is that a bridge loan is for the net equity from the sale of the existing property, minus the existing mortgage balance and selling costs. The bridge loan amount should facilitate the purchase of the new home until the current home's sale is complete. The maximum amount Emily would qualify for is the net equity from her sold home ($700,000 sale - $300,000 mortgage = $400,000 gross equity). After factoring in estimated selling costs (e.g., real estate commission ~5% or $35,000), Emily's net equity is around $365,000. However, bridge loans are primarily to cover the down payment of the new property that is tied into the equity of the sold property. The maximum bridge loan is typically the net equity available from the sold property that will be used for the current purchase. In this scenario, it would be the full equity from the sale that is needed for the new purchase. Considering selling costs ($35k for commission on $700k), the net proceeds are $365k. She needs $85,000 as a downpayment (5% on $500k, 10% on $350k portion, total $25k + $35k = $60k). The bridge loan is usually for the difference between the sale proceeds (less mortgage and selling costs) and the down payment required for the new home. The maximum bridge loan amount is effectively limited by the net proceeds from the sale of the current home needed to complete the new purchase ($700,000 - $300,000 mortgage = $400,000 gross equity available. Bridge loan will cover whatever of this $400,000 is needed to complete the purchase). The maximum bridge loan is capped by the net proceeds from the sale of the existing property, which is $700,000 (sale price) - $300,000 (current mortgage) = $400,000, minus customary selling costs. Assuming a 5% real estate commission of $35,000, this leaves $365,000. The bridge loan would ideally cover the funds needed from this amount to close the new purchase. If the down payment for the new purchase is $85,000 (as calculated by her minimum) the bridge loan would be $150,000 because she's using the proceeds towards the purchase. It's the difference between the two prices. $850,000 (new) - $700,000 (old) = $150,000.