Short-Term Bridge Financing for Property Flips

Quick answer

Short-term bridge financing is a temporary loan real estate investors use to buy and renovate a property quickly, then repay the loan after a sale or refinance. These loans prioritize speed and collateral (the property and its after-repair value) over the borrower’s long credit history.

Why flippers use bridge financing

Flippers use bridge financing to move quickly in competitive markets, cover repair costs that traditional lenders won’t include in a purchase mortgage, or hold a property while they complete renovations and list it. In my practice working with fix-and-flip investors, I’ve seen bridge loans unlock deals that would otherwise be lost to cash buyers or longer-mortgage timelines.

Lenders offering short-term bridge loans may be local private lenders, specialized bridge-lending shops, or hard-money lenders. Each has a different appetite for risk and fee structure.

Typical terms, costs, and underwriting

• Term length: Usually 3 to 12 months; some bridge products extend to 18 months for complex rehabs.
• Interest rates: Commonly in the 8%–18% range for fix-and-flip bridge or hard-money loans as of 2025, varying with market conditions, property class, and lender risk. (Rates change with macro conditions; confirm quotes.)
• Fees and points: Origination fees (1–4% of loan), underwriting, appraisal, inspection, and servicing fees are common. Some lenders charge 1–2 “points” (1–2% of loan amount) at closing.
• Loan sizing: Underwriters typically look at loan-to-cost (LTC), loan-to-purchase (LTP), or loan-to-after-repair-value (ARV). For flips, lenders commonly offer 60%–75% of ARV or 70%–80% of the purchase+rehab cost (loan-to-cost), depending on lender and property condition.
• Payment structure: Interest-only monthly payments or deferred interest rolled into payoff are common. Make sure you know whether interest accrues monthly or is capitalized at the end.

Authoritative guidance on consumers and mortgage-like products is available from the Consumer Financial Protection Bureau (CFPB) (https://www.consumerfinance.gov) and HUD (https://www.hud.gov).

How a bridge loan for a flip typically works (step‑by‑step)

1. Deal identification: Investor finds a purchase opportunity priced below market or with upside after renovation.
2. Proposal to lender: Borrower provides purchase contract, rehab budget, timeline, and exit plan (sale or refinance).
3. Underwriting: Lender orders appraisal (often ARV appraisal), reviews contractor bids, and assesses exit feasibility. The lender focuses on the property’s resale potential.
4. Funding: Closing can be quick—often days to a few weeks—once documentation and title searches are complete.
5. Draw schedule and rehab oversight: Many lenders use a draw schedule tied to work milestones; funds for rehab are released after inspections.
6. Exit: Borrower repays the bridge loan with proceeds from the sale or by refinancing into a conventional mortgage.

Real example with numbers

Assume purchase price = $150,000; estimated rehab = $60,000; projected ARV = $300,000.

• Lender offers 70% of ARV = 0.70 * $300,000 = $210,000. That covers the purchase ($150k) + rehab ($60k) = $210,000 — a neat fit. If the lender uses loan-to-cost instead (say 75% LTC on purchase + rehab = $210k), the loan still works.

Costs for a 6‑month flip at 12% annual rate on a $210,000 loan (interest-only):

• Monthly interest ≈ 12%/12 * $210,000 = $2,100.
• Interest for 6 months = $12,600.
• Plus origination fee 2% = $4,200.
• Hard costs (closing, draws, contingencies) and sales costs should be added.

Net profit must cover all of this plus seller concessions, holding taxes, utilities, and sales commissions. In practice, I advise clients to subtract a 10% contingency from projected profit for unexpected delays or cost overruns.

Common lender types

• Hard-money lenders: Short approval windows, property-focused underwriting. See our guide to hard-money loans for investors: “Hard Money Short-Term Loans: Use Cases for Real Estate Investors” (https://finhelp.io/glossary/hard-money-short-term-loans-use-cases-for-real-estate-investors/).
• Private investors and private funds: Can be more flexible on structure but may charge higher returns.
• Community banks and credit unions: Some offer short-term bridge products for developers and investors but with more documentation and lower risk tolerance.
• Specialty bridge lenders: Firms that focus specifically on temporary financing for purchases and renovations (see “How Bridge Loans Work for Homebuyers and Developers” (https://finhelp.io/glossary/how-bridge-loans-work-for-homebuyers-and-developers/)).

Key underwriting metrics lenders check

• After-Repair Value (ARV): Lenders use ARV to size the loan and estimate resale proceeds.
• Loan-to-Cost (LTC) and Loan-to-ARV (LTV/ARV): Determine how much they will lend against purchase+repair or ARV.
• Borrower experience and project plan: While asset-focused lenders care more about the deal than the borrower, a detailed rehab plan and contractor bids reduce friction.
• Exit strategy feasibility: Quick sale comps, listing plan, or evidence of refinance options.

Exit strategies and timing

Most bridge loans require a clearly documented exit strategy. Common exits:

• Resale (flip): Sell the renovated property and pay off the loan at closing.
• Refinance: Refinance into a conventional mortgage if the investor intends to hold or convert to a rental.
• Payoff from other capital: Using cash reserves or private refinancing sources.

An unclear or unrealistic exit plan is the single biggest risk I see with first-time flippers using bridge financing.

Practical tips and risk management (professional insights)

• Build conservative budgets: Use 10–20% contingencies on rehab budgets and add 2–4% for carrying costs.
• Time the market: Don’t rely on best-case sale timelines. Delays increase interest and fees.
• Negotiate draws and fees: Structured draws tied to verified milestones reduce misuse and lender risk; negotiate lower points if you can provide a stronger exit (e.g., pre-sale agreement).
• Obtain written contractor bids and licenses: Lenders often require proof of licensed contractors and line-item budgets.
• Compare effective APRs: Look beyond headline interest rates to include points, fees, prepayment penalties, and servicing costs. See our related page on pricing and exit timing for renovation bridge loans: “Bridge Financing for Renovation Projects: Timing Your Exit” (https://finhelp.io/glossary/bridge-financing-for-renovation-projects-timing-your-exit/).

Common mistakes and how to avoid them

• Underbudgeting rehab and carrying costs. Solution: add conservative contingency and get multiple contractor bids.
• No backup exit plan if the market softens. Solution: pre-qualify for a short-term refinance or build hold-cost runway.
• Misunderstanding lender disbursement rules. Solution: ask for the draw schedule and inspection triggers in writing.

Regulatory and consumer protections

Short-term bridge and hard-money loans for investors are commercial in nature, but state rules on licensing, usury caps, and disclosure can apply. For consumer-facing mortgage products, consult guidance from the Consumer Financial Protection Bureau (CFPB) (https://www.consumerfinance.gov) and Department of Housing and Urban Development (HUD) (https://www.hud.gov), and check state lending authorities.

FAQs (short)

Q: How fast can I close? A: Some bridge lenders close in a few days; typical timelines range from 3 days to 2–3 weeks depending on title, appraisal, and documentation.

Q: Are bridge loans the same as hard-money loans? A: Bridge loans overlap with hard-money: both are short-term and asset-based. Hard-money lenders are a common source of bridge capital, but banks also offer structured bridge products.

Q: Is there a prepayment penalty? A: Sometimes. Ask the lender and factor potential penalties into your effective annual cost.

Final checklist before you sign

• Confirm the loan term, interest accrual method, and exact fees.
• Verify draw schedule and inspection requirements.
• Ensure your exit plan is realistic with comps and an up-to-date timeline.
• Run sensitivity scenarios (longer rehab, lower sale price) to test profitability.

The right short-term bridge loan can be the difference between winning a deal and watching it go to someone else. Use conservative projections, document everything, and treat bridge financing as a tactical tool with a clear exit.

Professional disclaimer: This article is educational and does not constitute financial, legal, or tax advice. Consult licensed professionals—including a lender, attorney, and tax advisor—before using bridge financing.

Sources and further reading

• Consumer Financial Protection Bureau — consumerfinance.gov
• U.S. Department of Housing and Urban Development — hud.gov
• FinHelp guides: “How Bridge Loans Work for Homebuyers and Developers” (https://finhelp.io/glossary/how-bridge-loans-work-for-homebuyers-and-developers/), “Hard Money Short-Term Loans: Use Cases for Real Estate Investors” (https://finhelp.io/glossary/hard-money-short-term-loans-use-cases-for-real-estate-investors/), and “Bridge Financing for Renovation Projects: Timing Your Exit” (https://finhelp.io/glossary/bridge-financing-for-renovation-projects-timing-your-exit/).