Imagine you’ve found your next new property, but you’re stuck in a situation where your current one hasn’t sold yet. The timing’s off, and the down payment is stuck in your last investment.
That’s where bridge financing steps in. It helps you move fast without waiting for your old investment to close.
It’s a short-term loan that fills the gap between what you have and need. It’s often interest-only. And yes, it comes with higher interest rates, but sometimes speed is worth the tradeoff.
In this guide, you’ll learn how bridge loans work, when they make sense, and what risks to consider. You’ll also find out how they compare to other short-term financing options.
How Does Bridge Financing Work?
A bridge loan helps you purchase a new property while waiting for cash flow. It’s short-term, usually six to twelve months. And it gives you quick access to cash, often through a second mortgage payment or a wraparound loan.
In most cases, the loan is tied to your current property. A lender looks at your property’s value, equity, and credit score. Then they offer a lump sum to help with the down payment on your next property.
The money comes fast. However, it comes with higher interest rates and short repayment terms than traditional loans.
You’ll likely make interest-only payments each month until your old property sells. Once it does, you repay the bridge loan in full, either with the sale proceeds or by refinancing.
Some bridge loans wrap into a new mortgage loan. Others stay separate. Either way, you’re carrying two debts at once: your existing mortgage and your bridge financing.
That can impact your debt-to-income ratio, so make sure the math makes sense.
Remember, you’ll also pay closing costs, and some lenders may require origination fees or even PMI, depending on your loan-to-value ratio.
Bridge loans can work well for property owners with substantial equity and a clear exit plan. You avoid delays, get your dream property, and skip the stress of contingent offers.
Exploring Residential vs. Commercial Bridge Loans
Bridge loans come in two forms. The goal is the same: short-term financing to fill a gap. But the path looks different depending on what you’re buying.
Residential Bridge Loans
If you’re a home buyer stuck between selling and buying, this loan helps you move forward.
Say you’ve found your new property, but your current property hasn’t sold yet. A bridge loan gives you a lump sum to cover the down payment. The equity in your existing property backs the loan. You repay it after your property sells, or through a refinance.
This can help if you’re downsizing, relocating, or simply trying to avoid contingent offers. But it’s still debt. Higher interest rates and closing costs can add up, so read the repayment terms closely.
Commercial Bridge Loans
Bridge loans in commercial real estate work on a bigger scale. Think business buyers, property investors, or real estate developers who must move fast.
Use cases vary; acquiring a new property, funding a renovation, or buying before a sale closes. Sometimes, the loan helps you hold a property while lining up permanent financing.
Commercial bridge loans often involve larger loan amounts, higher LTVs, and stricter bridge loan terms. You may need to show projected cash flow, financials, and detailed plans. Lenders may also check the health of the real estate market and your company’s balance sheet.
Unlike a traditional mortgage, these loans come with shorter terms, higher mortgage rates, and added risk. But in the right hands, they offer speed and flexibility when timing matters most.
Alternatives to Bridge Loans
A bridge loan works fast, but is not always the best fit. You might want lower rates, fewer fees, or more time. That’s where alternatives come in.
HELOC | A property equity line of credit gives you access to the funds needed. You borrow against the equity in your current property. Interest rates are often lower than those of bridge loans, and you only pay interest on what you use. It’s flexible, but closing can take time. If you hurry to buy a new property, it may not move fast enough. |
Property Equity Loans | This gives you a lump sum upfront. It uses your property’s value to determine your loan amount. It comes with fixed monthly payments and usually lower interest rates than short-term bridge financing. But it also adds a second mortgage. If your current loan is high or your credit score is low, you might not qualify. |
Personal Loans | A personal loan is simple. No property is required for backing it. However, you’ll likely face high rates, lower borrowing limits, and tight repayment terms. Still, this could be a fallback option if your equity is tied up or your DTI is too high. |
Short-Term Business Loans | If you’re buying commercial real estate, a short-term business loan can sometimes replace a bridge loan. Depending on your cash flow and company profile, it may offer better terms. Ask your loan officer what financing options your business qualifies for. Commercial lending is all about timing and numbers. |
Swing Loans | A swing loan is another name for a bridge loan. Some lenders use the term when the loan is tied to a new property purchase, not just the sale of the old one. Terms vary, but the structure is nearly the same. |
A bridge loan isn’t the right choice for everyone. You may want to skip a bridge loan if:
- Your current property may take time to sell
- You’re already stretched with monthly payments
- Your credit score or LTV ratio is borderline
- You’re worried about foreclosure risk or a slow real estate market
Match the loan to your timeline and equity. Some risks are worth taking. Others are not.
Is a Bridge Loan the Best Option for Your Investment?
If you need fast financing based on your property’s equity, Pacific Northwest Capital Partners can help. We offer private loans based on our own criteria.
Explore all the loan programs that are available to match all kinds of investment opportunities. Consider options like acquisition loans, or talk to a lender about what makes sense for your next move.
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