Loan type
Bridge loans
Short-term financing against a property you already own or are buying, used to cover a gap in time rather than to fund a renovation.
At a glance
| What it funds | A timing gap - buying before selling, or holding while repositioning |
|---|---|
| Leverage | 60% to 75% of as-is value |
| Rate | 8.0% to 15.0% |
| Points | 1.0 to 4.0 points |
| Term | 3 to 24 months |
| Payments | Interest-only, sometimes with an interest reserve |
| Rehab funds | Usually none, or a small holdback |
| Exit | Sale of the outgoing asset, or a permanent refinance |
A good fit when
You have a specific, dated event that will repay the loan - a sale under contract, a refinance in underwriting, a lease signing.
A poor fit when
The repayment event is hoped for rather than scheduled. Bridge debt against an uncertain exit is the most reliable way to turn a timing problem into a solvency problem.
A bridge loan solves a sequencing problem. You need money now and will have money later, and the two do not line up. The distinguishing feature against a fix-and-flip loan is that there is usually no rehab component - you are buying time, not construction funding.
The common uses
- Buy before you sell. Closing on the next property while the current one is under contract.
- Auction and foreclosure purchases where the timeline is measured in days.
- Repositioning. Holding a partly vacant commercial or multifamily asset while leasing up to the occupancy a permanent lender requires.
- Bridging to a permanent loan that is in process but will not close in time.
- Partner or estate buyouts where a deadline is set by something other than the market.
The one thing that matters
Cross-collateral is common here
Buy-before-you-sell bridges are frequently secured against both properties, released when the outgoing one sells. That is a reasonable structure and it deserves a careful read of the release provisions - see cross-collateralisation.
What to check
- Is there minimum interest? On a 90-day bridge a three-month minimum is the whole loan.
- What is the extension provision, and is it a right or a discretion?
- Is there an exit fee? Bridges are short, so an exit fee is a large share of total cost.
- If cross-collateralised, what releases the second lien and when?
- Is an interest reserve taken from proceeds, and how many months?
Questions people actually ask
How much do you put down on a hard money loan?
Against as-is value, lenders typically go to 60% to 75%, so 25%-40% comes from you. On a purchase with rehab the more common framing is loan-to-cost: 80%-90% of the purchase price plus 100% of the rehab budget, held back and released in draws.
Do not confuse the down payment with cash to close. Points, flat fees, title, insurance and the first draw you fund yourself all sit on top. Ten to fifteen percent of purchase price is a realistic planning figure for total cash needed on a leveraged flip.
How much down do you need for a hard money loan?
See above - 10% to 20% of purchase is the usual range, before fees and reserves.
Does a hard money lender cover 100%?
Almost never on purchase price, and the offers advertising it usually mean something narrower: 100% of the rehab budget (common and real), or 100% of purchase where the purchase is far below as-is value and the loan is still inside the lender's ARV cap (rare and deal-specific), or 100% with cross-collateralisation against another property you own (real, and it puts a second asset at risk).
Treat a headline promising 100% financing with no cash as the marketing hook it usually is, and read what the offer actually caps at. See the truth about 100% financing.
How long do you have to pay off a hard money loan?
Terms run 6 to 24 months, with 12 months the most common. That is a hard deadline with a fee attached, not a guideline - which is why the exit matters more than the rate.
How do you pay back a hard money loan?
Three ways, and you should know which one before you sign. Sell the property and pay off from proceeds. Refinance into longer-term debt, usually a DSCR rental loan. Or pay it off from other capital. Most hard money loans are interest-only during the term with the principal due as a balloon at the end, so there is no amortisation quietly reducing what you owe.
What is the downside of a bridge loan?
That it is priced as though the repayment event is certain, and then the repayment event turns out not to be. Everything else follows from that.
Concretely: a short term with a hard maturity date, 8.0% to 15.0% pricing plus points on money you hold for only a few months, minimum-interest clauses that hurt most on exactly this kind of fast loan, a personal guarantee behind it, and - if it is a buy-before-you-sell bridge - two properties at risk instead of one. See bridge loans and minimum interest.
Are bridge loans a good idea for real estate?
They are a good idea when you are bridging to something already scheduled - a sale under contract, a refinance in underwriting, a lease signed. They are a bad idea when the thing on the other side is hoped for.
The test is one sentence long: write down the event that repays this loan, and the date it happens. If you cannot, it is not a bridge - it is short-term debt against optimism, at the most expensive rate available.
Is it difficult to qualify for a bridge loan?
Comparatively, no - that is the point of the product. Qualification turns on the collateral and the exit rather than on your income, and funding takes about a week. The genuine constraint is cash: expect 60% to 75% of as-is value, so the rest comes from you.
What does Dave Ramsey say about bridge loans?
He is against them, along with most debt, and the underlying caution is fair: a bridge loan against an unsold house is a bet that two transactions land in the right order, and if they do not you are carrying two properties at once.
The part worth separating out is that his advice is aimed at households buying a home to live in, where the downside is your residence. This site is about business-purpose loans on investment property, where the calculation is different - it is a financing decision inside a business, not a lifestyle one. The caution still applies to the certainty of the exit, which is the thing that actually goes wrong. It does not follow that leverage is always the wrong answer for an investor.
What are the alternatives to a bridge loan?
In rough order of cost, cheapest first: a home equity line on a property you already own (cheap, slower, and it is your own collateral); a cash-out refinance of an existing asset; seller financing or a delayed closing, which costs nothing and is asked for far too rarely; a contingent offer, if the market will tolerate one; a partner funding the gap for a share; or simply selling first and renting for a few months.
Bridge debt wins on speed and on certainty of funds, not on price. If your timeline can absorb three extra weeks, one of the above is almost always cheaper - see hard money versus everything else.