You are selling one house and buying another. In an ideal world both close on the same day, your equity moves directly from one transaction to the other, and nothing else is needed.
In practice the dates rarely align, because two separate chains of buyers and sellers are involved and each has their own constraints. When the purchase closes before the sale, you need the down payment before your equity arrives.
That is what bridge financing does. The lender advances the money you are about to receive, secured against both properties, for the days or weeks between the two closings.
The hard requirement: the sale must be firm
This is the whole test, and it is not negotiable at institutional lenders.
A firm sale means an unconditional accepted offer with all conditions removed. The buyer's financing condition has been waived, their inspection is done, and the transaction is binding.
A conditional sale does not count, however confident everyone is. If the buyer's financing fails, the lender has advanced money against equity that no longer has a buyer, and they are unwilling to take that risk.
The practical consequence: you cannot arrange bridge financing on the strength of a listing or an accepted-but-conditional offer. If you need to buy before your sale is firm, you are looking at qualifying to carry both properties, or at a much more expensive private arrangement. See private lending.
What it costs
Less than most people assume, because it is short.
Interest, typically prime plus a margin, charged only for the days the funds are outstanding. On $120,000 bridged for two weeks, the interest is commonly a few hundred dollars.
An administration fee, usually a few hundred dollars.
Legal costs, because your lawyer registers an interest against both properties. Often modest as an addition to work they are doing anyway.
For a typical two to four week bridge, the whole exercise commonly lands in the high hundreds to low thousands. Against the alternative of a rushed sale at a lower price, or a hotel and a storage unit, it is usually excellent value.
Longer bridges cost proportionally more, and most lenders cap the period at around thirty to ninety days.
How much can be bridged
The net proceeds of your sale: the sale price, less the mortgage being paid out, less realtor commission and legal costs.
Lenders will not advance more than that, and they will want to see the sale agreement and a calculation. If your purchase requires more down payment than your sale will net, bridging does not solve it and you need additional funds from elsewhere.
Arrange it with the purchase, not afterwards
Bridge financing is normally provided by the lender funding your new mortgage, as part of the same application. That makes it straightforward and cheap.
Arranging it separately at the last minute is harder and more expensive, and some lenders will not provide a bridge on a mortgage they are not funding. So raise it at the outset: tell your broker you may need one, even if you hope the dates will align.
Not every lender offers bridge financing at all. If there is any chance you will need one, that becomes a factor in choosing where the mortgage goes, which is a good reason to have the conversation before the file is submitted.
What can go wrong
Your sale collapses after the bridge is advanced. Rare, since the sale was firm, but possible if a buyer defaults. You are then carrying two properties and a bridge loan. This is the risk the firm-sale requirement is designed to minimise rather than eliminate.
The sale is delayed. Bridges have an end date. If your sale closing moves, tell the lender immediately; extensions are usually available but not automatic.
You underestimate the net proceeds. Commission, legal fees and payout penalties on the existing mortgage all reduce what arrives. Calculate the net figure rather than the sale price.
The related question: what happens to your existing mortgage
If you are selling and buying, ask about porting before anything else. Carrying your existing rate and terms to the new property avoids a penalty entirely, and porting works alongside bridge financing. The timing windows are tight, so it is a conversation to have early. See porting.
The wider sequencing question, including what to do when you have no sale at all, is covered on buying and selling in the same market.