A bridge loan is short-term money secured by real estate, repaid when something else happens: a sale, a refinance, a lease-up or a permanent loan that is not ready yet. It exists because good real estate deals rarely wait for a bank. The seller wants to close in two weeks, the property does not qualify for conventional financing in its current state, or the money you need is locked in a property you have not sold yet. A bridge loan closes that gap, and it is priced for speed and certainty rather than for the long term.
This is how a bridge loan works, when investors use one, how it is sized and priced, what it takes to qualify and what it has to be repaid with.
When investors use a bridge loan
To win the purchase. A seller comparing a cash offer with a financed one usually takes the cash, because it closes. A bridge loan lets you offer terms that look like cash and refinance afterwards.
To buy before you sell. Your equity is in a property that has not sold yet. A bridge loan on the new property, or against the one you own, lets you move without a contingent offer.
To buy what a bank will not lend on yet. A vacant building, a property with deferred maintenance, a condo that is non-warrantable or a property coming out of a foreclosure. The bridge loan carries it until it qualifies for permanent debt. Our posts on foreclosure auctions and non-warrantable condo financing cover two of the most common cases.
To meet a deadline. A 1031 exchange replacement property, a note that is maturing, a partner buyout. When the date is fixed, the lender that can commit is worth more than the lender that is cheapest.
To stabilize. Lease up a building, finish a light renovation or season the ownership before refinancing into long-term debt at a better rate.
How a bridge loan is sized
A bridge loan is sized on the property, not on your income. Our bridge loans lend up to 75% of the value on residential property and up to 70% on commercial property, from $150,000 to $25,000,000.
On a $1,000,000 residential property that means a loan up to $750,000. On a $2,000,000 commercial building, up to $1,400,000. The value comes from an appraisal or, where appropriate, a broker price opinion, and leverage can be set below the maximum when the property or the exit calls for it.
What a bridge loan costs
Our published bridge rates run from 9.00% to 13.00%, on 1 or 2 year terms. On top of the rate there are points and third party costs such as title, escrow and the valuation. The number to compare between lenders is the total cost over the months you will actually hold the loan, not the rate alone.
To put the rate in context: at 10%, a year of interest on $750,000 is $75,000, or about $6,250 a month. That is why bridge loans are used for months, not years, and why the exit matters more than the rate. Our bridge loans carry no prepayment penalty, so the loan can be repaid the day the exit is ready. The pricing guide covers what moves the price up or down.
How to qualify
The residential bridge program requires a 650 minimum credit score and no prior experience. Larger commercial bridge loans ask for comparable experience. Beyond that floor, the decision rests on four things.
- The property: its value, its condition and its title.
- The exit: a sale supported by comparable sales, or a refinance the property will qualify for.
- Your liquidity: the down payment, closing costs and enough reserves to carry the loan.
- Occupancy: investor bridge loans are for non-owner occupied property. For the home you live in, the owner occupied bridge applies.
The exit is the loan
Every bridge loan is repaid by something else, so the exit is underwritten as carefully as the property. If you plan to sell, the lender looks at what comparable properties actually sell for. If you plan to refinance, the property has to qualify for that refinance on the day you need it: a rental property loan that qualifies on the rent, or a commercial loan that qualifies on the income.
Test the exit before you close. Take the value you expect, apply the refinance lender’s leverage, check the rent or income against the new payment, and confirm the result repays the bridge. Our post on the hard money exit strategy walks through it.
Bridge loan, fix and flip loan or hard money loan
The words overlap. A hard money loan is any short-term loan from a private lender that is underwritten mainly on the property. A bridge loan is a hard money loan used to carry a property from one point to the next, usually in its current condition. A fix and flip loan adds a renovation budget released through draws, and sizes the loan on the purchase, the rehab and the after repair value. If the property needs real work, you want the fix and flip structure. If it needs time, a buyer or a refinance, you want the bridge.
How fast a bridge loan closes
A clean file closes in 3 to 14 days once the title work, the valuation and the documents are in. What slows a file down is rarely the lender’s credit decision. It is a title issue nobody found early, a valuation that has to be revisited or a document that arrives late. Send the contract, the property details and proof of funds on day one and most of that disappears.
Start with the property and the exit
Tell us the property, the price or the payoff, the timeline and how you plan to repay the loan. We will tell you what the bridge looks like and what you need to close. Start on the bridge loan program, submit a loan request or call (619) 617-2797.
