A bridge loan is short-term financing secured by real estate. It “bridges” the gap between needing money now and getting permanent financing, or selling the property, later. Investors use bridge loans when timing matters more than getting the lowest possible rate.
How a bridge loan works
- Short term. Terms are typically measured in months to a couple of years rather than decades.
- Interest-only payments. Many bridge loans are interest-only, which keeps the monthly payment low while you execute your plan.
- Based on the deal. Underwriting focuses on the property, the plan and your exit strategy.
- An exit is required. You repay the loan by selling the property or refinancing into long-term financing.
When investors use bridge loans
- Competing in a fast market. A quick close can win a deal that a slower loan would lose.
- Buying before selling. Acquire a new property before your current one sells.
- Properties that do not qualify yet. Vacant, partially renovated or under-leased properties often cannot get long-term financing until they are stabilized.
- Buying below market. Close quickly on a discounted purchase, then refinance after improving it.
Bridge loan vs. fix and flip loan
The two overlap. A fix and flip loan is built around a renovation, funding the purchase and holding rehab money for draws. A bridge loan is a more general short-term loan, useful when you need speed but the work is light or the plan is a refinance. Your loan officer can tell you which fits your deal.
What to weigh before you take one
- Total cost. Compare rate, points and fees together, not just the rate.
- Your exit. Know exactly how you will repay it, and have a backup if the timeline slips.
- Term and extensions. Ask what happens if you need more time.
- Prepayment. Some loans charge for paying off early; know before you sign.
Have a deal that needs to close quickly? Get a quote and a loan officer will walk through your options.