Bridge Loans: Short-Term Financing for Real Estate Transitions

What Are Bridge Loans?

Bridge loans are short-term financing solutions that "bridge the gap" between an immediate real estate need and a future funding source. These temporary loans help investors and homeowners secure new properties before selling existing ones, complete time-sensitive acquisitions, or transition between different types of permanent financing.

The term "bridge" describes the loan's purpose: providing temporary funding to get from Point A (current situation) to Point B (permanent financing or property sale). Once you reach Point B, you pay off the bridge loan and transition to your permanent financing solution.

Typical Characteristics:

• Term: 6-24 months (12 months most common)
• Purpose: Temporary financing until permanent solution available
• Rates: 7-14% interest
• Payments: Interest-only monthly (sometimes no payments if short term)
• Exit Strategy: Property sale, refinance, or permanent financing
• Approval: Fast (7-21 days)

Common Bridge Loan Scenarios:

Scenario 1: Home Buyer

• Found dream home
• Must close in 30 days
• Current home not yet sold
• Bridge loan: Covers down payment, paid off when current home sells

Scenario 2: Real Estate Investor

• Found excellent investment property
• Need to close quickly before another buyer gets it
• Permanent financing takes 45 days
• Bridge loan: Closes in 10 days, refinanced to permanent loan in 2 months

Scenario 3: Developer

• Construction project nearing completion
• Permanent financing ready but requires certificate of occupancy
• Need 3 months to finish and get CO
• Bridge loan: Covers final 3 months until permanent loan funds

Types of Bridge Loans

Closed Bridge Loans

Fixed term with specific payoff date:

Structure:

• Predetermined term (6, 12, or 24 months)
• Clear exit strategy identified at closing
• Payment: Interest-only monthly or single payment at end
• Must be paid off or refinanced by maturity date

Best For:

• Properties under contract to sell (known sale date)
• Refinance in process (known closing date)
• Construction projects with completion timeline
• Situations with predictable exit timing

Example:

• Current home under contract, closing in 90 days
• 3-month bridge loan to purchase new home
• When current home closes, bridge loan paid off

Open Bridge Loans

Flexible term with no fixed payoff date (within max term):

Structure:

• Term: Up to 12-24 months
• Flexible payoff (pay off when ready, within term limits)
• Payment: Interest-only monthly
• Used when exit timing uncertain

Best For:

• Listed property not yet under contract
• Property needs improvements before sale
• Market conditions unpredictable
• Want flexibility on exit timing

Example:

• Purchase new home
• List current home for sale
• May take 3-12 months to sell
• Open bridge loan provides flexibility

Purchase Bridge Loans

Finance acquisition of new property:

Structure:

• Loan amount: Down payment or full purchase price
• Collateral: New property, existing property, or both
• Term: Until sale of existing property or permanent financing
• LTV: 65-80% of new property value

Best For:

• Homeowners buying before selling
• Investors acquiring properties
• Moving-up buyers
• Competitive markets requiring non-contingent offers

Equity Bridge Loans

Extract equity from existing property:

Structure:

• Loan amount: Based on equity in existing property
• Collateral: Existing property only
• Purpose: Down payment on new purchase
• LTV: Up to 80% of existing property value

Best For:

• Home buyers with significant equity
• Don't want to sell current home immediately
• Need down payment for new purchase
• Eventually will sell or refinance current property

Blanket Bridge Loans

Cover multiple properties:

Structure:

• Secures loan with multiple properties
• Cross-collateralized
• Larger loan amounts
• Flexible deployment of funds

Best For:

• Investors with multiple properties
• Portfolio transitions
• Large-scale acquisitions
• Complex real estate transactions

How Bridge Loans Work

The Loan Structure

Loan Amount Calculation:

Method 1: Based on Purchase Price

Loan Amount = New Purchase Price × LTV (typically 70-80%)

Example:

• New home: $500,000
• Bridge loan: $400,000 (80% LTV)
• Your cash: $100,000 (20% down)
• Exit: Sell current home, pay off $400,000 bridge loan

Method 2: Based on Combined Equity

Max Loan = (Current Home Value × LTV) + (New Home Value × LTV) - Current Mortgage

Example:

• Current home value: $600,000
• Current mortgage: $300,000
• Current home equity: $300,000
• New home: $700,000
• 80% LTV on both properties
• Max bridge loan: ($600,000 × 0.80) + ($700,000 × 0.80) - $300,000 = $1,040,000
• Covers new purchase + payoff existing mortgage

Interest Rates and Fees

Interest Rates:

• Home bridge loans: 7-10%
• Investment bridge loans: 9-14%
• Factors affecting rate:
  • Credit score (higher = lower rate)
  • LTV (lower = lower rate)
  • Property types
  • Exit strategy clarity
  • Borrower experience

Origination Fees:

• Typically: 1-3% of loan amount
• $300,000 loan × 2% = $6,000 fee
• Paid at closing
• Sometimes rolled into loan amount

Other Fees:

• Appraisal: $400-$800 per property
• Title insurance: 0.5-1% of loan amount
• Attorney fees: $1,000-$3,000
• Processing fee: $500-$1,500

Total Cost Example:

$400,000 bridge loan, 12 months, 9% interest, 2% origination:

• Origination fee: $8,000
• Interest (12 months): $36,000
• Other fees: $3,000
• Total cost: $47,000 (11.75% effective annual cost)

This seems high, but remember:

• It's short-term (6-12 months, not 30 years)
• Enables time-sensitive opportunities
• Avoids sale contingencies (stronger offers)
• Often paid from proceeds of property sale

Payment Structures

Interest-Only Monthly Payments: Most common structure:

• Pay only interest each month
• No principal reduction
• Full loan balance due at maturity

Example:

• $300,000 loan at 10%
• Monthly interest: $2,500
• After 12 months: Still owe $300,000

Deferred Payment (No Monthly Payments): Some short-term bridge loans:

• No monthly payments
• Interest accrues and added to balance
• Pay principal + accrued interest at end

Example:

• $300,000 loan at 10%, 6 months, deferred payment
• Month 1-6: No payments
• Month 6: Pay $300,000 + $15,000 interest = $315,000

Principal + Interest (Rare): Uncommon for bridge loans:

• Amortizing payments
• Pay principal and interest monthly
• Balance reduces over time

Collateral Requirements

Single-Property Collateral: Bridge loan secured by one property:

• New property (purchase bridge loan)
• Existing property (equity bridge loan)
• LTV: 65-80%

Cross-Collateralized (Both Properties): Bridge loan secured by both properties:

• Current home + new home as collateral
• Combined LTV: 70-80%
• Lender has claim on both until paid off

Example:

• Current home: $500,000 value, $200,000 mortgage
• New home: $600,000 purchase price
• Bridge loan: $450,000
• Secured by both properties
• Combined value: $1,100,000
• Combined debt: $650,000 ($200,000 + $450,000)
• Combined LTV: 59%

Release Provisions: When current home sells:

• Sale proceeds pay off bridge loan portion
• Lien released from sold property
• Bridge loan converts to conventional on new home, or
• Refinance new home to permanent loan

Bridge Loan Requirements

For Borrowers

Credit Score:

• Minimum: 620-680 (varies by lender and property type)
• Optimal: 700+ (best rates and terms)
• Some private bridge lenders flexible on credit

Income Verification:

• May be required (full doc)
• Or minimal income verification (asset-based)
• Ability to carry both properties (if applicable)
• Exit strategy more important than income

Equity Requirements:

• Minimum 20-30% equity in existing property (if using as collateral)
• Down payment for new purchase: 20-30%
• Combined LTV: 70-80% max

Exit Strategy:

• Clear exit plan required:
  • Property sale (listing agreement, market analysis)
  • Refinance (pre-approval for permanent financing)
  • Cash infusion (proof of funds coming)
  • Business sale or liquidation event
• Backup exit strategy: What if primary plan fails?

Reserves:

• 3-6 months payments in reserves
• Higher reserves may allow higher LTV
• Demonstrates ability to carry loan if sale delayed

For Properties

Property Types:

• Single-family homes
• Condos (warrantable)
• Townhomes
• Small multifamily (2-4 units)
• Commercial properties (with commercial bridge loans)

Property Condition:

• Move-in ready (for homeowners)
• May accept distressed (for investors with renovation plan)
• Clear title required
• Adequate insurance coverage

Location:

• Most markets accepted
• Rural or declining areas may be restricted
• Lender-specific geographic preferences

Appraisal:

• Required on all properties used as collateral
• "As-is" value if existing property
• Current market value for accuracy

Advantages of Bridge Loans

Speed and Flexibility

Fast Closing:

• Approval: 5-10 days
• Closing: 7-21 days
• Much faster than traditional mortgages (30-45 days)
• Can compete with cash buyers

Flexible Terms:

• Customized to your situation
• Negotiable interest rates and fees
• Flexible exit strategies
• Payment structures tailored to needs

Competitive Offer Strength

No Sale Contingency:

• Make offers without "subject to sale of current home"
• Stronger offer in competitive markets
• More attractive to sellers
• Win bidding wars

Cash-Like Offers:

• Quick close like cash buyers
• No financing contingency (if full bridge loan)
• Certainty of closing
• Negotiating power

Access to Equity

Unlock Home Equity:

• Access equity without selling
• Use for down payment on new purchase
• Maintain ownership of both properties temporarily
• Time market for better sale price

Portfolio Flexibility:

• Don't rush to sell in poor market
• Make improvements before selling
• Wait for right buyer
• Optimize sale timing

Prevents Missing Opportunities

Time-Sensitive Deals:

• Secure property before competitor
• Take advantage of market opportunities
• Don't miss dream home
• Act on investment opportunities

Disadvantages of Bridge Loans

High Costs

Interest Rates:

• 7-14% (much higher than traditional mortgages)
• $300,000 × 10% = $30,000/year interest
• Short duration mitigates total cost but rate is still high

Fees:

• Origination: 1-3%
• Appraisals, title, legal
• Total fees: $10,000-$20,000+ on larger loans

Example Total Cost: $400,000 bridge, 12 months:

• Interest: $40,000
• Fees: $15,000
• Total: $55,000 (13.75% effective cost)

Carrying Two Properties

If keeping both properties:

• Two mortgages (original + bridge)
• Two property tax bills
• Two insurance policies
• Two sets of maintenance/repairs
• Significant monthly outlay

Example:

• Current home payment: $2,500/month
• Bridge loan payment: $3,000/month
• Total: $5,500/month for both properties

This assumes you can afford or have rental income.

Risk if Property Doesn't Sell

What if current home doesn't sell?

• Bridge loan comes due (6-12 months)
• Still owe full balance
• Must refinance (if possible) or
• Forced to reduce price for quick sale or
• Potential default

Mitigation:

• Price property realistically
• Hire experienced agent
• Prepare property well
• Have backup exit strategy (refinance or extend bridge)
• Keep substantial reserves

Limited Lender Options

Not widely available:

• Not offered by most major banks
• Specialty lenders primarily
• Portfolio lenders
• Private money sources
• Requires shopping around

Stressful Situation

Pressure to sell:

• Clock ticking on bridge loan maturity
• Need to maintain two properties
• Market conditions beyond your control
• Emotional stress of uncertain timing

Bridge Loan Strategies

Strategy 1: The Clean Exit

Purchase new home, immediately list old home:

Timeline:

• Day 1: Close on bridge loan and new home
• Day 1: List current home for sale
• Day 30-90: Current home sells
• Day 90: Pay off bridge loan from sale proceeds

Best For:

• Strong housing markets
• Priced correctly
• Good property condition
• Realistic seller

Risk Mitigation:

• Price below market for quick sale
• Professional staging
• Excellent agent
• Marketing plan ready before closing

Strategy 2: The Renovation Bridge

Improve current home before selling:

Timeline:

• Day 1: Close on bridge loan, purchase new home
• Month 1-2: Renovate current home (empty house, easier renovation)
• Month 3: List renovated home at premium price
• Month 4-5: Sell at higher price
• Day 150: Pay off bridge from higher proceeds

Benefits:

• Higher sale price offsets bridge loan costs
• Empty home easier to renovate and show
• Present best possible condition to buyers
• May net more despite bridge costs

Calculation:

• Bridge cost: $20,000 (6 months)
• Renovation: $30,000
• Sale price increase: $75,000
• Net benefit: $25,000

Strategy 3: The Refinance Bridge

Bridge to permanent financing:

Timeline:

• Day 1: Close bridge loan, purchase investment property
• Month 1-6: Property stabilization (repairs, tenant placement, seasoning)
• Month 6-12: Refinance to conventional or DSCR loan
• Month 12: Pay off bridge from refinance

Best For:

• Investment properties
• Properties needing minor work before conventional financing
• New construction (bridge until CO obtained)
• Properties requiring "seasoning" period

Example:

• Purchase distressed rental: $200,000
• Bridge loan: $180,000 (90% LTV)
• Renovate, rent property: $1,500/month
• After 6 months: Refinance to DSCR loan (70% LTV = $175,000)
• Pay off bridge, keep property as rental

Strategy 4: The Investment Accelerator

Use bridge to acquire property quickly, then refinance:

Process:

1. Find great investment property (needs quick close)
2. Bridge loan closes in 7-10 days (beat competition)
3. Win deal over conventionally-financed buyers
4. Immediately apply for permanent financing
5. Month 1-2: Close permanent loan
6. Pay off bridge from permanent financing

Cost:

• Bridge for 1-2 months only
• $200,000 × 12% = $24,000/year = $4,000 for 2 months
• Worth it to win great deal

When It Makes Sense:

• Property significantly below market
• Rental income or flip profit exceeds bridge costs
• Competitive bidding (need speed)
• Can't wait for conventional timing

Strategy 5: The Market Timer

Bridge to wait for better sale market:

Scenario:

• Current market slow (winter, economic downturn)
• Want to purchase now (great deal on new home)
• Prefer to wait for spring market to sell current home

Timeline:

• November: Close bridge, purchase new home
• November-March: Wait for spring market, rent current home if possible
• March-June: Sell current home in peak spring market
• Advantage: Better sale price may offset bridge costs + rental income helps

When to Use Bridge Loans

Ideal Scenarios

✓ Found perfect home and need to close before selling current home

✓ Significant equity in current home (30%+ to borrow against)

✓ Strong housing market where your home will sell quickly

✓ Competitive bidding situation requiring non-contingent offer

✓ Time-sensitive investment opportunity requiring quick close

✓ Substantial income/reserves to carry two properties if needed

✓ Clear exit strategy (sale, refinance, or payoff plan)

✓ Short-term need (6-12 months maximum)

Avoid If...

✗ Uncertain current home will sell (poor market, overpriced, bad condition)

✗ Can't afford two payments for several months if home doesn't sell

✗ Limited equity in current home (less than 20%)

✗ Poor credit (below 650) or weak financial situation

✗ No clear exit strategy or backup plan

✗ Can negotiate sale contingency (seller will wait for your home to sell)

✗ No urgency to purchase immediately

✗ Could rent temporarily instead of buying immediately

Alternatives to Bridge Loans

Home Equity Line of Credit (HELOC)

Pros:

• Lower rates (typically 7-9%)
• Flexible draw as needed
• Longer term (10-30 years)
• Lower costs

Cons:

• Takes 30-45 days to open
• May need income verification
• Limited to equity in current home
• Doesn't work for urgent situations

Best For:

• Planning ahead (open HELOC before finding new home)
• Need down payment only (not full purchase price)
• Not time-sensitive

Home Sale Contingency

Structure: Make offer "subject to sale of current home":

• Buyer finds home they want
• Makes offer contingent on selling current home within 30-60 days
• If current home sells, purchase proceeds
• If current home doesn't sell, buyer can walk away

Pros:

• No bridge loan needed
• No double payments
• Less financial risk
• No bridge loan costs

Cons:

• Weaker offer (seller may reject or accept backup offers)
• May lose dream home to non-contingent buyer
• Seller has "kick-out clause" (can accept better offer and give you 72 hours to remove contingency)

Best For:

• Buyer's markets
• Not competing with other offers
• Seller willing to wait
• No urgency on timing

80-10-10 or 80-15-5 Loans

Structure:

• First mortgage: 80% of new home
• Second mortgage (bridge/HELOC): 10-15% of new home
• Your cash: 5-10% down

Pros:

• Avoids PMI
• Lower interest on first mortgage (80% LTV)
• Can use equity from current home for second mortgage

Cons:

• More complex (two loans)
• Higher total interest than single loan
• Both loans secured by new property

Best For:

• Buyers with good credit
• Want to avoid large down payment from savings
• Will use equity from current home sale to pay off second mortgage

Rent Current Home

Structure:

• Purchase new home
• Rent out current home (don't sell)
• Keep current home as investment property

Pros:

• No bridge loan needed
• Rental income helps carry both mortgages
• Build rental portfolio
• Take advantage of appreciation

Cons:

• Become landlord
• Qualify for new mortgage with current mortgage in DTI
• May need 25% down on new home (investment property on current)
• Ongoing property management

Best For:

• Current home would make good rental
• Can afford both payments (or rental income covers current mortgage)
• Want to build investment portfolio
• Strong income to qualify for both

Finding Bridge Loan Lenders

Portfolio Lenders

Community banks and credit unions:

Advantages:

• Relationship-based
• Keep loans in portfolio
• Flexible underwriting
• Local decision-making

How to Find:

• Visit local banks and credit unions
• Ask for commercial or portfolio lending department
• Explain your situation
• Bring documentation

Hard Money Lenders

Private and hard money lenders often offer bridge loans:

Advantages:

• Fast approval and closing (5-10 days)
• Asset-based (less emphasis on income/credit)
• Flexible terms
• Experience with real estate investors

Disadvantages:

• Higher rates (10-14%)
• Higher fees (3-5 points)
• Shorter terms

Find Through:

• Real estate investment clubs
• Online search "hard money bridge loans [your city]"
• Referrals from real estate agents or attorneys

Mortgage Brokers

Brokers access multiple bridge loan sources:

Advantages:

• Shop multiple lenders
• Experience with bridge loans
• Navigate complex situations
• No cost to use broker

Find Through:

• Referrals from real estate agents
• Online search for mortgage brokers specializing in bridge loans
• Interview 2-3 brokers

National Bridge Lenders

Several companies specialize in bridge loans:

Examples:

• LendingHome (now Kiavi)
• Angel Oak Mortgage Solutions
• LoanBoss
• Finance of America

Advantages:

• Standardized processes
• Online application
• Fast approval
• Nationwide lending

Our Network

EDP Realty connects buyers and investors with bridge lenders:

• Vetted lenders with competitive terms
• Experience with various bridge scenarios
• Fast closing timelines
• Clear communication

Need Bridge Loan Assistance? Request Lender Information - We'll connect you with qualified bridge lenders who can help with your specific situation

Related Financing Options

Explore other financing options that might work for your situation:

• Hard Money Loans: Complete Guide for Real Estate Investors - Learn everything about hard money loans: when to use them, qualification requirements, costs, and ho...
• Hard Money Loans in Evansville, IN: Guide for Real Estate Investors - Learn everything about hard money loans: when to use them, qualification requirements, costs, and ho...
• DSCR Loans: Complete Guide for Real Estate Investors - Master DSCR loans: how to qualify based on property cash flow instead of personal income, calculate ...

Next Steps

1. Evaluate Your Situation

Current Property:

• Current home value: $_____
• Current mortgage balance: $_____
• Equity available: $_____
• Expected sale price: $_____
• Realistic time to sell: _____ months

New Property:

• Purchase price: $_____
• Down payment needed: $_____
• Closing costs: $_____
• Total cash needed: $_____

Bridge Loan Needed:

• Amount: $_____
• Estimated term: _____ months
• Estimated cost (interest + fees): $_____

2. Develop Exit Strategy

Primary Exit:

• Sale of current property
• Expected timeline: _____ months
• List price: $_____
• Net proceeds: $_____

Backup Exit:

• If property doesn't sell: _____
• Refinance option? Yes / No
• Rental option? Yes / No
• Can extend bridge loan? Yes / No

3. Check Financial Capacity

Can you afford both payments?

• Current home payment: $_____/month
• Bridge loan payment: $_____/month
• New home payment (if applicable): $_____/month
• Total: $_____/month

Do you have reserves?

• 6 months of both payments: $_____
• Current liquid savings: $_____
• Adequate reserves? Yes / No

4. Prepare Documentation

For Lender:

• Current property appraisal or market analysis
• Current mortgage statement
• Purchase contract for new property
• Income documentation
• Credit report authorization
• Bank statements
• Exit strategy explanation

5. Connect with Bridge Lenders

Shop multiple options:

• Get quotes from 3-5 lenders
• Compare: rates, fees, terms, closing timeline
• Evaluate: exit flexibility, prepayment penalties, extension options

Ready to Explore Bridge Financing? Connect with Bridge Loan Specialists - Our team can help you evaluate whether a bridge loan makes sense and connect you with qualified lenders

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Frequently Asked Questions

Q: How is a bridge loan different from a home equity loan? A: Bridge loans are short-term (6-12 months) with higher rates, designed for temporary situations. Home equity loans are long-term (15-30 years) with lower rates, for ongoing needs. Bridge loans typically don't require income verification like HELOCs.

Q: Can I get a bridge loan with bad credit? A: Possible but difficult. Minimum 620-650 credit score typically required. Lower scores may qualify with significant equity, high income, or through private bridge lenders (higher costs).

Q: What happens if my house doesn't sell before the bridge loan is due? A: Options include: (1) Extend bridge loan (fee + continued interest), (2) Refinance to long-term loan if possible, (3) Bring cash to pay off bridge, (4) Reduce price for quick sale, (5) Rent property temporarily. Always have backup plan before taking bridge loan.

Q: Do I need income verification for a bridge loan? A: Depends on lender and LTV. Asset-based bridge loans (lower LTV, lots of equity) may not require income verification. Higher LTV bridge loans typically require income proof. Exit strategy often more important than income.

Q: Can I use a bridge loan for an investment property? A: Yes, bridge loans work for investment properties. Rates are typically higher (9-14%) than for primary residences. Common for quick acquisitions before permanent DSCR or conventional financing.

Q: How long does it take to get a bridge loan? A: 7-21 days typical. Hard money bridge loans: 5-10 days. Bank bridge loans: 14-21 days. Much faster than traditional mortgages (30-45 days).

Q: Can I pay off a bridge loan early without penalty? A: Most bridge loans have no prepayment penalty since they're designed for short-term use. Always confirm before signing. Some lenders charge minimum interest (3-6 months) even if paid off early.

Q: Do I need an appraisal for a bridge loan? A: Yes, typically required on all properties used as collateral. Some lenders accept BPO (Broker Price Opinion) instead of full appraisal to save time and money.

Q: Can I get a bridge loan for a commercial property? A: Yes, commercial bridge loans are available with similar structure to residential. Rates typically 8-15%, terms 12-36 months. Used for acquisitions, construction completion, or refinance gaps.

Q: What's the maximum loan-to-value for bridge loans? A: Typically 70-80% LTV. Some aggressive lenders offer 90% LTV with higher rates and fees. Lower LTV gets better rates and easier approval.

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Bridge loans provide crucial short-term financing solutions for real estate transitions, enabling homeowners to purchase before selling and investors to act on time-sensitive opportunities. While these loans carry higher costs than traditional mortgages, their speed, flexibility, and ability to facilitate otherwise impossible transactions make them valuable tools in the right circumstances. Success with bridge loans requires realistic property valuations, clear exit strategies, adequate reserves, and recognition that they're temporary solutions, not long-term financing.

Ready to explore bridge loan options? Our lending specialists can help you evaluate whether bridge financing makes sense for your situation and connect you with qualified lenders. Get started today.