Bridge Loan

A bridge loan is a short-term loan that "bridges" the gap between an immediate financing need and a permanent financing solution. They're designed for transactions where you need capital fast and a long-term loan isn't available yet.

For real estate investors, bridge loans typically fund acquisitions of properties that don't qualify for conventional or DSCR financing — distressed properties, properties needing rehab, fast-close situations, or deals where the borrower is repositioning the asset before refinancing into a long-term loan.

How bridge loans work

Three defining features:

1. Short term. Most bridge loans run 6-24 months. The expectation is built into the loan: you'll exit (refinance or sell) within that window.

2. Speed. Bridge lenders close in 7-14 days. Some specialty lenders close in 5 days. Conventional financing takes 30-45 days minimum — bridge fills that gap when speed matters more than rate.

3. Asset-based qualification. Bridge lenders care about the property's value and your exit strategy more than your tax returns or DTI. If the property is solid and the exit plan is realistic, the loan funds.

How bridge loans are priced

Bridge loans cost more than conventional financing — that's the trade for speed and flexibility:

• Rate: Typically 9-12%, sometimes higher in distressed scenarios. Significantly above 30-year DSCR rates.
• Points: 1.5-3 points at closing (paid to the lender as origination fee).
• LTV: Usually 65-75% of property value, sometimes 80% on strong scenarios.
• Interest-only payments: Most bridge loans are interest-only during the term, with principal due as a balloon at exit.

For a $400K loan at 11% interest-only for 12 months, monthly payment is ~$3,667. You're paying ~$44K in annual interest as the cost of speed and flexibility.

When bridge loans are the right tool

Distressed acquisitions. Foreclosure auctions, bank REOs, and off-market wholesale deals often require cash or bridge financing. Conventional won't touch unrehabbed properties.

Fast-close requirements. Sellers often demand close in 14 days or less to win competitive deals. Bridge can hit that timeline.

BRRRR acquisition phase. Use a bridge loan to acquire + rehab a property. Refinance into a long-term DSCR loan at the end of phase 4, paying off the bridge.

1031 exchange timing. If your replacement property closing is delayed, a bridge loan can fund the close while you wait for the relinquished property sale to complete.

Property repositioning. Buy a property that doesn't qualify for long-term financing today (e.g., needs significant rehab, has occupancy issues, or has stabilization needs). Bridge it for 12-18 months while you reposition. Then refinance into the long-term loan.

The exit strategy is everything

Bridge lenders care less about the property than about how you'll get out. Three primary exits:

• Refinance into long-term loan: Most common. After rehab/seasoning, refinance into DSCR or conventional. Bridge is paid off from refinance proceeds.
• Sell: Flip strategy. Property is acquired, repositioned, and sold within the bridge term.
• Pay from other capital: Less common. Pay the bridge from cash on hand or sale of another asset.

Without a clear exit plan, a bridge loan becomes a trap. Lenders may extend (at additional cost), but if neither refinance nor sale is possible, you're at risk of foreclosure.

Rate Hero's take

We use bridge loans extensively for investors doing BRRRR, fix-and-flip, and value-add deals. The advantage of working with one broker through both phases: we underwrite your refinance from day one, so the exit is locked in before you close on the bridge.

If you have a deal where conventional won't work but the math is solid, talk to us about bridge structures. Speed costs money, but missing the deal costs more.