Navigating Bridge Loans for Short-Term Real Estate Financing
An investment bridge loan provides short-term financing to “bridge the gap” between the purchase of one property and the sale of another. See how this program works and if it’s right for you below.
What Is an Investment Bridge Loan?
Covers costs in between a purchase and permanent financing
A bridge loan can be used for closing costs, renovations, and other upfront expenses before your permanent financing is in place, so you can begin improvements without delay.
Typically closes faster than a conventional mortgage
The application and approval process for conventional mortgages can be lengthy and complex. Bridge loans can move much faster through underwriting to offer an advantage for time-sensitive deals.
Ideal for distressed and undervalued properties that may not qualify for traditional financing before repairs
If an investment property needs major updates or otherwise fails to meet typical lending standards, a bridge loan may allow you to move forward with a purchase anyway.
What Can an Investment Bridge Loan Be Used For
To buy a fixer-upper
Investment bridge loans can be used to purchase short-sale properties, foreclosure auctions, private off-market listings, and other revenue-generating assets.
To capitalize on a time-sensitive opportunity
A bridge loan lets you close the deal fast and begin repairs right away while you explore long-term financing options, which can give you an edge in competitive real estate markets.
To cover interim costs when selling one asset to finance another
If you're juggling multiple transactions, like finalizing the sale of one property while looking to take advantage of another deal, a bridge loan lets you cover costs until your existing asset is sold.
Pros
- Offers short-term flexibility
- Can be used for a wide variety of property types and conditions
- Gives investors a competitive edge
- Multiple exit strategies
Cons
- Shorter repayment periods than conventional mortgages
- High pressure on revenue generation and cash flow
- Risk of overleveraging if market conditions deteriorate or renovation costs exceed initial estimates
Talk to our mortgage experts today about finding the right loan for you.
Investment Bridge Loan Alternatives
- A commercial bridge loan is used for commercial property acquisitions or refinances
- Works like an investment bridge loan
- May offer faster approval and closing timelines than other investment loan programs
- DSCR loans determine eligibility based on the property's revenue-generating potential
- May help scale investment portfolios faster if each asset meets DSCR thresholds
- Ideal for investors with multiple properties
- Non-QM mortgages offer flexibility for complex financial backgrounds
- Allows for non-traditional income documentation, like bank statements or asset-based qualifications
- Offers various loan structures, including fixed-rate, adjustable rate, and interest-only options
How Do I Know If a Bridge Loan Is Right for Me?
You have sufficient equity in an existing property to use for collateral
If you have adequate equity in your existing property, a bridge loan can help you acquire a new one. This may let you take advantage of a prime investment opportunity while awaiting the sale of your original asset.
Your property may not meet standard underwriting guidelines
Properties in need of repairs or with unique features may not qualify for traditional financing. This program may offer an alternative for buying distressed or undervalued property that could become profitable once improved.
You have a clear exit strategy
If you have a realistic plan for how you'll exit the loan, like paying it off when your current property sells or refinancing to a long-term mortgage, a bridge loan could be an excellent fit.
When Is the Best Time to Use an Investment Bridge Loan?
The best time to take out an investment bridge loan is when you’re bridging the gap between two transactions, but the proceeds from the sale won’t be available in time for the purchase.
With a short-term bridge loan, you can close on the new property and then repay the loan once your original asset has sold.
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FAQ
How long is the term for an investment bridge loan?
Can investors roll closing costs or fees into the principal of a bridge loan?
Depending on the program you choose, you may be able to include origination fees, closing cost, and other expenses into your bridge loan. This can let you proceed with a transaction with no upfront costs, which can be particularly advantageous in fast-moving real estate markets.
Do investment bridge loans have any prepayment penalties?
What happens if an investor cannot refinance or sell the property before the bridge loan matures?
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