What Is a Bridge Loan? How It Works in Real Estate
A plain-English guide to bridge loans: what they are, how they work, what they cost, when to use one and how to plan your exit.
By the CFUND advisory team · 6 min read
How a bridge loan works
You borrow against a property for a short period, typically paying interest only. During that time you complete your plan — finish renovations, lease up vacant units, sell another property or line up permanent financing. Then you repay the bridge loan in one payment at the end of the term.
- Secured by the property you're buying or already own
- Usually interest-only, with the full balance due at maturity
- Sized on property value (LTV) and sometimes project cost (LTC)
- Repaid by a sale or a refinance into a longer-term loan
When investors use a bridge loan
- Buying quickly before a bank could close
- Purchasing a property that's vacant, under-rented or needs work
- Buying a new property before selling the old one
- Paying off a maturing loan while you arrange permanent financing
- Covering the period between construction completion and stabilization
What a bridge loan costs
Expect higher rates and fees than a bank loan, because you're paying for speed and flexibility. Costs usually include an interest rate, origination points, and third-party costs such as appraisal and title. Pricing depends on leverage, property type, location, your experience and the strength of your exit — any number you see online is a market range, not a quote.
Plan the exit before you close
The most important part of a bridge loan is how you'll pay it off. Lenders want a believable exit, and so should you. If you plan to refinance, check that the stabilized property will meet the new lender's DSCR and LTV requirements. If you plan to sell, use conservative sale prices and allow extra time.
- Know your target refinance or sale number
- Build in a time cushion — delays are common
- Ask about extension options and their cost up front