Bridge Loan

What is a bridge loan?

A bridge loan is temporary financing designed to "bridge" a timing gap, most commonly buying a new property before selling an existing one, or acquiring and stabilizing an investment property before it qualifies for permanent financing. Terms typically run six months to three years, with interest-only payments and a balloon payoff when the exit event (sale or refinance) occurs.

Homeowners use bridge loans to make non-contingent offers: the loan taps equity in the current home to fund the new purchase, then is repaid when the old home sells. Investors use bridge debt to buy vacant, mismanaged, or heavily renovated properties that permanent lenders will not finance yet, stabilize them with tenants and a track record, then refinance into long-term debt, the financing backbone of value-add and BRRRR strategies.

Pricing sits between conventional and hard money: often 2% to 4% above prime-quality mortgage rates, plus 1 to 2 points. The main risk is the exit: if the old house does not sell or the stabilized refinance appraises low, the borrower faces expensive extensions or a forced sale. Conservative borrowers stress-test the exit before signing.

Worked example

You are buying a $400,000 home before your current house sells. A bridge loan against your current home’s equity funds the down payment; you carry both properties for four months at interest-only payments, then your old house sells for $350,000 and the bridge loan is repaid from proceeds at closing.

Frequently asked questions

How is a bridge loan different from a hard money loan?

The categories overlap heavily, both are short-term, asset-focused, and interest-only. "Hard money" usually implies a private lender financing distressed property and renovation budgets at the highest pricing tier. "Bridge" is the broader term and includes bank and institutional programs for homeowners buying before selling and for investors stabilizing decent properties, generally at somewhat lower rates than classic hard money.

What happens if my exit falls through before the bridge loan matures?

You will need an extension (typically costing additional points and a rate bump), a refinance with another lender, or a sale of the property, potentially at a discount if you are under time pressure. This is the central risk of bridge debt. Mitigate it by borrowing well below maximum leverage, keeping cash reserves, and pressure-testing the exit assumptions (sale price, rent, appraisal) before you commit.