Why Dave Ramsey Warns Against Bridge Loans When Buying Your Next Home

When you’re ready to purchase a new home but your current property hasn’t sold yet, the temptation to move forward can be overwhelming. You’ve spotted the perfect neighborhood, the timing feels right, and you’re eager to make an offer. But financial expert Dave Ramsey cautions that this scenario presents a significant financial risk, particularly when sellers use bridge loans to bridge the gap between purchase and sale. Understanding why Dave Ramsey advises against this strategy can help you make a more secure financial decision.

Understanding Bridge Loans and When Buyers Consider Them

A bridge loan is a short-term financing solution designed for homebuyers who need immediate capital before their existing property sells. Essentially, it allows you to access funds against your current home’s equity while waiting for that sale to close. The lender typically uses your existing home as collateral—meaning if you fail to repay, they can claim that property to recover their money.

The appeal is obvious: you can make offers on new homes without waiting for your current sale to finalize. In competitive real estate markets where homes sell quickly, being able to move without contingencies attached to your offer gives you a significant advantage over other buyers.

The Hidden Costs: Interest Rates and Late Payment Penalties

This is where Dave Ramsey’s skepticism becomes warranted. Bridge loans typically carry substantially higher interest rates compared to traditional mortgages, sometimes 1-2% higher depending on market conditions. Beyond the base rate, late payment penalties can be severe—potentially costing you thousands of dollars if your home sale takes longer than anticipated.

The structure puts you in a precarious position. You’re essentially gambling that your current home will sell quickly and for a price that covers both the bridge loan repayment and your down payment on the new property. If the sale takes longer or closes below asking price, you could face significant financial strain managing two properties plus loan obligations simultaneously.

Market Conditions: Are Bridge Loans Safer Now?

While bridge loans have always carried inherent risks, their danger level fluctuates based on real estate market conditions. In strong seller’s markets with low inventory, homes typically move quickly, reducing the time you’d owe on a bridge loan. Your property is less likely to languish on the market unless it’s significantly overpriced or has obvious flaws.

However, relying on favorable market conditions as your safety net is itself risky. Markets shift. Economic circumstances change. Employment situations become uncertain. Depending on factors outside your control—particularly when substantial debt is involved—is precisely the kind of financial vulnerability that experts like Dave Ramsey counsel against.

Dave Ramsey’s Position: Why Financial Experts Caution Against This Approach

Dave Ramsey’s fundamental objection to bridge loans reflects a broader philosophy: avoid unnecessary debt and don’t put yourself in positions where you’re dependent on perfect market timing. His concern isn’t theoretical—it’s based on recognizing what happens when circumstances don’t unfold as expected.

The safest approach remains waiting until your current home actually sells before making an offer on a new property. Yes, you might need to accept a contingency in your bid, which could be rejected in competitive markets. But Dave Ramsey and similar financial advisors argue that protecting yourself from debt obligations and financial stress is worth that trade-off. The alternative—locking yourself into a bridge loan with elevated interest rates, aggressive timelines, and substantial penalties—carries too much risk for most homebuyers.

If you’re considering this path, make sure you’ve fully internalized the potential downsides rather than focusing solely on the convenience of moving forward without waiting for your sale to close.