Overview

Short-term bridge financing gives investors fast access to capital to seize opportunities that won’t wait for traditional underwriting. Lenders approve these loans based primarily on the asset and exit plan rather than full long-term underwriting, so funding can close in days to a few weeks.

Key features

  • Typical term: a few weeks up to 12 months.
  • Collateral: usually the property being bought or renovated.
  • Costs: higher interest rates and fees than permanent mortgages; lenders expect an exit strategy.
  • Speed: faster approval and funding than conventional loans.

How bridge financing works (step-by-step)

  1. Opportunity identified: a property is available that requires rapid action.
  2. Brief underwriting: lender assesses value, exit plan, and borrower experience.
  3. Loan structure: interest-only payments or rolled interest; some lenders require a reserve.
  4. Exit: borrower repays via refinance to permanent mortgage, sale of the property, or a planned equity event.

Who uses bridge loans and eligibility

Common users include property flippers, small developers, and investors buying distressed or off-market assets. Lenders look for:

  • Sufficient property value or equity;
  • Credible exit strategy (sale, refinance, or construction completion);
  • Track record or experience for larger deals.

Costs & risks to plan for

  • Interest and fees: Bridge rates are higher than long-term loans; expect origination fees, appraisal costs, and sometimes lender-paid interest reserves.
  • Short timeline risk: If the exit is delayed, short-term costs can compound.
  • Collateral risk: Because the property secures the loan, default can lead to foreclosure.

Exit strategies (what lenders expect)

Real-world example

In my practice I worked with an investor who found a below-market multifamily building needing quick closing and minor rehab. We used a 6-month bridge loan to close, completed targeted upgrades, then refinanced to a conventional investor mortgage after a new appraisal increased the loan-to-value ratio.

Professional tips

  1. Verify your exit before you close: lenders will ask for a believable timeline and repayment source.
  2. Build a cost cushion: assume the exit could take longer; set aside extra funds for interest and carrying costs.
  3. Compare structures: some bridges are interest-only; others roll interest into the principal—know how each affects cash flow.
  4. Negotiate caps and prepayment terms: some lenders charge heavy prepayment penalties; others allow refinance without penalty.

Common mistakes

  • Treating a bridge loan like cheap capital. Its higher cost can erase thin profit margins.
  • Lacking contingency funds for delays.
  • Choosing lenders without local market experience; local appraisals and rent comps matter.

Quick FAQs

Q: How fast can I close on a bridge loan?
A: Many private or specialty lenders can fund in days to a few weeks; institutional lenders may take longer depending on documentation needs.

Q: Is interest on a bridge loan tax-deductible?
A: Interest deductibility depends on use of the loan and your tax situation. Consult an accountant and see IRS guidance; for general consumer protection info see the CFPB (https://www.consumerfinance.gov).

Professional disclaimer

This article is educational and not personalized financial, legal, or tax advice. Bridge financing terms vary widely—consult a lender, mortgage broker, and tax professional who know your deal and local market before you borrow.

Authoritative sources

Related reading on FinHelp

If you’d like, I can convert this into a printable checklist for evaluating bridge loan offers.