Some deals cannot wait for a full long-term loan. The seller wants a fast close. The property needs work before a lender will treat it as stable. Your current building is not sold yet. A bridge loan covers the gap.
It is a short-term loan, often interest only, that you plan to pay off with a sale or a refinance. The cost is higher than a long-term loan, and you pay it for a short time in exchange for speed and flexibility.
Who this loan fits
- Investors who need to close in days, not weeks
- Owners of a property that is not yet stabilized and not yet ready for long-term financing
- Buyers who need time to lease up a vacant building
- Investors moving between properties who need funds before a sale closes
When a bridge loan is the right tool
Bridge loans solve timing problems. If the property is vacant, a long-term lender may want it leased first. If the building needs repairs, a long-term lender may want them finished. A bridge loan lets you close, do the work, lease it up, and then refinance.
It is not the cheapest money, so use it when the speed or flexibility is worth the extra cost.
Know your exit before you start
Lenders ask how you will pay a bridge loan off. Your answer should be specific. Will you sell? Refinance into a DSCR loan? What will the property need to earn for that to work? A plan with real numbers makes a stronger file and a safer deal.
What it costs
Expect a higher rate than a long-term loan and fees at closing. Some bridge loans also charge an extension fee if you need more time. Add all of it up before you commit and compare it with the profit the deal should produce.
A sample bridge to a DSCR loan
- Purchase price
- $480,000
- Bridge loan (70% LTV)
- $336,000
- Time to lease up the building
- 4 months
- Rent once leased
- $4,300
- Payment on the DSCR loan that replaces it
- $3,350
- DSCR at exit
- 1.28
Illustration only. Terms, fees, and exit requirements vary by program and borrower.