Bridge loan alternatives in Colorado are one of the most common topics I discuss with homeowners in Centennial, Lone Tree, Parker, Highlands Ranch, Castle Rock, and throughout the Denver metro area and Colorado. Many move-up buyers assume a traditional bridge loan is the only way to access equity before selling their current home. In reality, there are several ways to approach this decision, and the right answer depends on cost, risk tolerance, and market conditions.

Before evaluating alternatives, it helps to understand how traditional bridge financing works. If you would like a detailed breakdown, you can read our article on How a Traditional Bridge Loan Works. Below is a high-level summary along with the key tradeoffs that often lead homeowners to explore other options.

How Traditional Bridge Loans Work

A traditional bridge loan is a short-term loan secured by your current home. It allows you to borrow against your equity so you can use those funds toward the purchase of your next property before your existing home sells.

These loans are typically:

• Short term, often 6 to 12 months
• Interest-only during the transition period
• Higher in interest rate than conventional mortgages
• Subject to origination fees and closing costs
• Limited by loan-to-value caps, often 70 to 80 percent

Disadvantages of Traditional Bridge Loans

While bridge loans can solve a timing challenge, they come with tradeoffs that should be carefully evaluated:

• Higher short-term interest rates
• Additional closing costs and lender fees
• Loan-to-value limits that may restrict available equity
• Strict repayment timelines
• Exposure to carrying multiple payments if your home does not sell quickly

Because of these factors, many homeowners begin searching for bridge loan alternatives in Colorado before committing to short-term financing.

The key is not simply accessing equity, but doing so in a way that aligns with your long-term financial plan.

Bridge Loan Alternatives in Colorado

When evaluating alternatives, the goal is to compare overall cost, risk, and competitive strength in today’s market.

Home Equity Line of Credit (HELOC)

A HELOC allows you to access equity from your current home before listing it for sale.

Pros:
• Often lower interest rates than traditional bridge loans
• Lower fees compared to many short-term bridge options
• Flexible draw structure so you only use what you need
• Interest-only payments based on the amount you actually borrow

Cons:
• You must qualify while still carrying your current mortgage
• Your debt-to-income ratio may limit access
• Some lenders reduce or freeze equity once the home is listed
• Variable interest rates can increase over time

For some homeowners, a HELOC provides a lower-cost way to bridge the gap, but qualification and timing matter.

401k Loan

Borrowing from a retirement account can provide short-term liquidity without traditional mortgage underwriting.

Pros:
• No lender qualification process
• Interest paid back to your own account

Cons:
• Reduces retirement growth potential
• Must follow repayment rules under guidelines from the Internal Revenue Service
• Risk if employment changes

This option may be appropriate in limited scenarios, but long-term opportunity cost should be considered carefully.

Borrowing from Family

Family financing can provide flexibility when structured properly.

Pros:
• Flexible repayment terms
• Potentially lower cost

Cons:
• Must be documented correctly for mortgage qualification
• Gift versus loan rules must be followed
• Can create personal strain if expectations are unclear

Proper documentation is critical to avoid complications during underwriting.

Increase Financing on the New Home and Recast Later

Instead of accessing equity upfront, some buyers choose to put less down on the new home, close with conventional financing, and then apply sale proceeds to reduce the principal balance and request a mortgage recast.

A recast is when your lender applies a lump sum payment to the loan balance and re-amortizes the remaining term to lower your monthly payment without changing the interest rate.

Pros:
• Lower overall cost than most bridge financing
• Straightforward conventional structure
• Reduces monthly payment after your home sells

Cons:
• Higher initial payment until the recast is completed
• Not all lenders offer recasting
• Typically requires a minimum lump sum payment

For homeowners with strong income, this can be one of the most cost-effective approaches.

Buy Before You Sell Bridge Loan

Another bridge loan alternative is a Buy Before You Sell bridge loan. This short-term financing structure is designed for homeowners who need to access equity from their current property in order to purchase their next home before it sells.

In competitive markets, this option can allow qualified buyers to remove a home sale contingency and, in many cases, present an offer that competes similarly to cash. For sellers trying to win in a multiple-offer environment, that competitive strength can be significant.

This type of bridge financing is structured by evaluating the combined value of both the current and future homes. In many cases, the lender will allow financing of up to approximately 80 percent of the combined value, minus any outstanding mortgage balances on the departure property.

Once the current home sells, a large portion of the bridge balance is paid down, and the remaining amount is refinanced into permanent long-term financing.

It is important to understand that Buy Before You Sell bridge loans are typically more expensive than traditional mortgage options and are intended strictly as a short-term solution. In many cases, interest payments can be financed during the transition period. The decision to use this structure should be based on whether the ability to compete like a cash buyer justifies the short-term cost.

Which Option Makes the Most Sense?

There is no universal answer.

The right approach depends on:

• How much equity you have
• Your income and qualifying ratios
• The competitiveness of the purchase market
• Your comfort with short-term risk
• How quickly your current home is expected to sell

The decision should not be based solely on which option is available. It should be based on total cost, timing risk, and long-term financial impact.

In some cases, a traditional bridge loan is appropriate. In others, a HELOC, recast strategy, or combined equity structure may make more financial sense.

If you are considering buying before selling in Centennial, Lone Tree, Parker, Aurora, Denver, Englewood, Highlands Ranch, Castle Pines, Greenwood Village, Littleton, or anywhere in Colorado, I am happy to help you compare these scenarios side by side.

You can reach me at rbaxter@choicemortgage.com or call (303) 670-0137 to discuss your specific situation.

The goal is not just to access equity. The goal is to structure a transition that protects your long-term financial position while giving you the competitive strength you need in today’s market.

For additional educational mortgage resources, visit our blog page.

Posted in Blog, bridge loans, buy before you sell, Home Purchase