Bridge Loan or Sell Investments to Buy Your Next Home?

October 1, 2026

Short answer: If buying your next home before selling would mean cashing out stocks or a retirement account, compare the taxes and penalties against the cost of a short bridge loan. Pulling money from an IRA or 401(k) can trigger income tax and, before 59½, a 10% penalty. A bridge loan repaid from your home sale often costs less. Run both numbers with your CPA first.

This comes up constantly with downsizers. Plenty of equity in the house, plenty saved for retirement, and not much sitting in checking. The instinct is to sell investments to buy the next home first. Sometimes that's fine. Often it's the most expensive way to do it.

What cashing out can really cost

Retirement accounts (IRA, 401(k)). Withdrawals are generally taxed as ordinary income in the year you take them. If you're under 59½, there's usually an additional 10% tax on top. (IRS: early distributions)
Taxable brokerage accounts. Selling stocks that have gone up can trigger capital gains tax on the gain.
Market timing. You sell on the day you need the money, not the day you'd choose.

What a bridge loan costs instead

Our bridge loans (and our Cash Offer program, which uses the same fund) cost 2.5% origination plus 1% per month interest that accrues and is paid at payoff, plus $3,250 in flat fees. No monthly payment while your home is listed and no prepayment penalty.

Example: a $200,000 bridge repaid in month 4 costs $5,000 + $8,000 + $3,250 = $16,250. Across the buy-before-you-sell bridges we've funded, the median time from funding to payoff has been 59 days.

Representative APR: about 16.4% on a $250,000 loan held 12 months (fees $6,250 + $3,250, interest $30,000; total cost of credit $39,500).

In one downsizing case we structured, the bridge loan cost the buyers about $23,000. Pulling the same money out of their IRA would have cost them roughly $80,000 in taxes and penalties. They bought the new home, sold the old one about two months later, and paid the bridge off in full from the sale.

Will I owe tax when I sell my house?

Often less than people expect. If you've owned and lived in the home as your main residence for at least 2 of the last 5 years, you can generally exclude up to $250,000 of gain from income, or $500,000 if you're married filing jointly. (IRS Topic 701) Most long-time homeowners repaying a bridge loan from their sale fall inside that exclusion. Your CPA can confirm your situation.

How to decide

Price the cash-out. Ask your CPA what the withdrawal or sale would cost in tax and penalties this year.
Price the bridge. Use the bridge loan calculator with a realistic number of months to sell.
Compare and choose. If the bridge costs less, your investments keep working and the house sale pays the bridge off.

Downsizing with most of your money in the house and retirement accounts? Start with our buy before you sell overview, or see the Cash Offer program.

Downsizing and bridge loan questions

Is it better to use a bridge loan or withdraw from my IRA to buy a house?

Compare the two numbers. IRA withdrawals are generally taxed as income, plus a 10% penalty before 59½. A short bridge loan repaid from your home sale often costs less. Your CPA should confirm the tax side.

Do I need a mortgage on the new home?

Not always. If your sale proceeds cover the bridge balance, you can pay it off in full and own the new home free and clear.

Will I pay capital gains tax when I sell my current home?

If it's been your main home for 2 of the last 5 years, up to $250,000 of gain ($500,000 married filing jointly) is generally excluded. Confirm with your tax advisor.

How fast can a bridge loan fund?

As soon as 7 business days after approval.

Want to compare the two numbers for your situation? Call or text our team at (203) 452-9899.