A bridge loan is a short-term real estate loan that “bridges” the gap between two financial situations. They are one of the most useful tools in a real estate investor’s financing toolkit — but they are often misunderstood. Here is how they actually work.
Bridge Loan: Simple Definition
A bridge loan is a short-term loan (typically 6–24 months) secured by real property. It provides fast, temporary financing while the borrower arranges permanent financing, sells the property, or completes a value-add project. Once the permanent solution is in place, the bridge loan is paid off.
How Bridge Loans Work
- Borrower needs capital quickly — to close a deal, fund a renovation, or reposition a property
- Bridge lender evaluates the property and the exit strategy (not the borrower’s income)
- Loan closes in 7–14 days — much faster than conventional financing
- Borrower makes interest-only payments during the loan term
- At maturity, borrower exits via sale, permanent refinance, or DSCR loan
Common Bridge Loan Scenarios for Real Estate Investors
Scenario 1: Buy Before You Sell
You find a great deal but your current property hasn’t sold yet. A bridge loan lets you close the new purchase now using equity in the property you’re selling. Once your old property sells, you pay off the bridge loan.
Scenario 2: Acquire a Distressed Property
Conventional lenders won’t lend on a property that has deferred maintenance, vacancies, or is in poor condition. A bridge loan funds the acquisition and renovation. Once the property is stabilized, you refinance into a DSCR or conventional loan.
Scenario 3: Speed Over Financing
The best deals go to all-cash or fast-close buyers. A bridge loan lets you compete as a “near-cash” buyer, closing in 7–10 days. You get the deal, then arrange long-term financing at your pace.
Scenario 4: Seasoning Before DSCR Refinance
DSCR lenders require 6–12 months of ownership before a cash-out refinance. A bridge loan can fund a purchase that you plan to DSCR-refinance — the bridge carries you through the seasoning period.
Bridge Loan Terms: What to Expect
| Feature | Typical Range |
|---|---|
| Term | 6–24 months |
| Interest rate | 9–14% annualized |
| Payment structure | Interest-only monthly |
| Max LTV | 65–75% of property value |
| Origination fee | 1–3 points |
| Close time | 7–14 business days |
| Income verification | Not required |
Bridge Loans vs. Hard Money Loans
These terms are sometimes used interchangeably, but there is a distinction in practice:
- Hard money loans — typically shorter (6-12 months), used for acquisitions or fix-and-flip projects, emphasis on rapid close
- Bridge loans — slightly longer terms (12-24 months), often used for stabilization, lease-up, or transition situations; may be used on commercial as well as residential investment properties
In practice, most “hard money” lenders also provide bridge loans, and vice versa. The underwriting approach is the same.
Bridge Loan Exit Strategies
Your exit strategy is the most important part of getting a bridge loan approved. Lenders want a realistic, documented plan for how they get repaid:
- Sale: List the property and sell before maturity (fix-and-flip)
- DSCR refinance: Stabilize the property, then refinance into a 30-year DSCR loan
- Conventional refinance: If the property qualifies after stabilization
- Cash payoff: From proceeds of another asset sale or business event
Need short-term financing for your next deal? See our bridge loan program, or get a free quote with your property details and exit plan.