What is a bridge loan primarily used for?

A bridge loan is primarily used to provide interim financing that enables a buyer to close on the purchase of a new home before their existing home has been sold. This type of loan essentially "bridges" the gap between buying a new property and selling an old one, helping buyers take advantage of opportunities in the housing market without having to wait until they've sold their current home.

This temporary financing is particularly useful in competitive markets where homes may sell quickly, allowing buyers to make purchase offers without the contingency of needing to sell their existing property first. It typically has a short repayment term, often just a few months, and is generally repaid once the old home is sold.

In contrast, refinancing an existing mortgage focuses on altering the terms of an existing loan, while consolidating multiple loans involves combining debts into a single loan for easier management. Improving a buyer's credit score is not a function of a bridge loan; instead, it involves credit management and financial habits. Therefore, the primary purpose of a bridge loan aligns with facilitating the purchase of a new home before the sale of an existing one.