What Is a Bridge Loan?
A bridge loan is short-term financing that "bridges" the gap between where you are and where you need to be. You might need to close on a property before your current one sells. You might need to stabilize a property before qualifying for permanent financing. You might need to act fast on an off-market deal before another buyer takes it.
Bridge loans solve the timing problem. They're designed for speed — some close in 3-5 business days — with the understanding that you'll pay them off quickly through sale, refinance, or other permanent funding.
Speed is the entire point. If you're competing against cash buyers or you have a seller who needs to close in 10 days, a bridge loan is how you match that speed with financing. The rate is higher than permanent financing, but the cost of losing the deal is higher than the rate premium.
Common Bridge Loan Scenarios
- Acquisition bridge — Close fast on a new property while your current property is under contract or listed for sale
- Stabilization bridge — Finance an occupied property that doesn't yet qualify for DSCR (vacancy, below-market rents, needed repairs)
- Auction purchases — Need to close in 24-72 hours on an auction win
- Foreclosure/REO — Banks selling distressed assets often require fast close
- Cross-collateral bridge — Use equity in an existing property to fund a new acquisition
- Construction exit — Bridge from a construction loan to permanent financing while leasing up
How Bridge Loans Are Structured
Bridge loans are typically interest-only with terms of 6-24 months. Rates range from 8-14% depending on the lender, the deal, and your experience. Most are first-lien position, though some lenders offer second-lien bridge loans against existing equity.
LTV ranges from 65-80% of the current property value (not ARV). Some lenders will cross-collateralize against other properties you own to increase leverage on the subject property.
Exit Strategy Is Everything
Every bridge lender will ask: how are you paying this off? The three common exits are:
- Sale — Property is listed or under contract; bridge buys time to close
- Refinance — Property will qualify for DSCR or conventional once stabilized
- Other capital event — Insurance payout, inheritance, business sale, partner buyout
If you don't have a clear, believable exit strategy, you won't get funded — and you shouldn't. A bridge loan without an exit is just expensive debt with a countdown clock.
What to Watch Out For
- Origination fees — Typically 2-4 points upfront. On a $300K bridge, that's $6K-$12K at closing.
- Default rates — If you don't exit by maturity, the rate often jumps 4-6% and penalties kick in.
- Minimum interest guarantees — Some lenders require 3-6 months of interest even if you pay off early.
- Personal guarantees — Most bridge loans are full-recourse to the borrower.