Many real estate transactions require bridge financing. This occurs when the closing date of the home you are selling may not match the date of the home you are buying. Sometimes, you may not receive the proceeds from the sale until after you have taken possession of your new home as the title may not have transferred. In that case you would not have the monies to pay for your new home so the mortgage lender would arrange "bridge" financing. With a "firm" sale, you can usually "borrow against the sale" of your home. This is what is referred to as bridge financing or obtaining bridge loans. This financing (the bridge) is advanced and then paid back once the sale of your own home closes at a later date. It is replaced by the new and "final" mortgage.
Bridge financing loans are often necessary because of conflicting interests on the part of buyers and sellers with regard to their own timing. This is especially the case when the sale of other homes may be involved. It also occurs when closing dates of homes sales do not match by design. In some cases home buyers want to take possession of the home they have purchased prior to the closing of their own home sale so that they can do renovations before moving in.
The cost of bridge financing varies. There is certainly mortgage interest costs - similar to regular mortgage loans. There may also be a set-up fee, which is sometimes negotiable, depending on the circumstances.