What is a Bridge Loan?
A bridge loan is a short-term financing solution that bridges the gap between two transactions. In real estate, bridge loans are typically used when an investor or homeowner needs to purchase a new property before selling an existing one, when quick closing is required and conventional financing is too slow, or when a property does not qualify for traditional financing in its current condition.
Bridge loans are characterized by short terms (6-36 months), higher interest rates (8-15%), quick funding (often within 1-2 weeks), and interest-only payments. They are designed as temporary financing to be repaid through sale of the property, refinancing into permanent financing, or other capital event.
Bridge loan terms
- Term: 6-24 months typical
- Rate: 8-15% (higher than conventional, lower than most hard money)
- LTV: Up to 75-80% of current value or 65-70% of ARV
- Points: 1-3 origination points
- Payments: Interest-only monthly, principal at maturity
- Closing speed: 1-3 weeks (vs. 30-45 days conventional)
Bridge loans vs. hard money
Bridge loans and hard money loans are similar but not identical. Bridge loans typically have lower rates and points, higher qualification standards (credit and income reviewed), and are used for stabilized or near-stabilized properties. Hard money loans are more asset-based (focused on property value, not borrower qualification), charge higher rates, and are commonly used for properties in poor condition that need renovation.
Bridge loans for investors
Investors use bridge loans to close quickly on time-sensitive deals where speed beats competing offers, fund the gap between buying a new rental property and selling an existing one via 1031 exchange, finance properties that need light renovation before qualifying for permanent financing, and acquire commercial properties that need lease-up before permanent debt.