What Is a Bridge Loan?

What is a bridge loan? I am asked this question all the time. A bridge loan is a short-term, interim loan that is paid off by a longer term, or permanent financing, or from the sale of the property.

When a bridge loan serves as a “bridge” from one stage to the next stage of financing, an example:

An LLC wishes to purchase an Assisted Living / Senior Housing Facility. The property is eligible for FHA Financing, but the approval process takes nearly a year. A bridge loan would be used in the first stage of financing, in the acquisition of the Assisted Living Center. The FHA financing will refinance the bridge loan within 8-9 months.

A bridge loan is also called a hard money loan. It can be used to take advantage of an opportunity quickly or provided under other, non-conventional lending circumstances. An example:

In the case of a property acquisition, a bridge loan can allow a real estate investor to buy a property at a low price, and then resell quickly at a higher price.

The interest rates charged by a bridge loan lender are much higher than interest rates found at a bank. Most bridge loans are of a short-term nature, typically from 2 to 3 years. There are some bridge loan lenders that offer 5 year terms.

Bridge loans require more money down on a purchase than a bank loan. On commercial purchases, bridge loans are typically 65-75% of the purchase price max. But when compared with new depository requirements of banks, the down payment is nearly equivalent when comparing a bridge lender with a bank lender.

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About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.