Quick summary

Short-term bridge loans (often just called “bridge loans”) give buyers and investors fast access to cash to close a deal when timing or liquidity is the problem. They’re designed to be repaid quickly — usually when the borrower sells an existing home, refinances into a conventional mortgage, or converts to a longer-term loan. While bridge loans can win competitive offers and enable investment plays, they also come with higher interest costs, origination fees, and timeline risk.

How short-term bridge loans work — the mechanism

  • Security: Lenders usually secure a bridge loan with the property being purchased, the property being sold, or both. That security limits loan-to-value (LTV) and influences pricing.
  • Term length: Most short-term bridge loans run from 30 days up to 12–18 months, depending on the lender and the borrower’s exit plan.
  • Interest and fees: Interest rates are higher than conventional mortgages; origination fees and closing costs are common. Expect higher effective borrowing costs because interest may be charged monthly and fees can be 1–3% or more of the loan amount.
  • Disbursement: Lenders can approve and fund bridge loans quickly (often within days to a couple of weeks), which is why they’re popular when speed matters.

In my practice advising buyers and investors, I’ve seen bridge offers approved in 48–72 hours for competitive deals — but the speed depends on clear documentation, the borrower’s equity, and a realistic exit strategy.

Common uses and real-world scenarios

  • Buying before you sell: A homeowner wants to purchase a new house but hasn’t sold the current home. A bridge loan lets them close the purchase and avoids contingent offers.
  • Investor acquisitions: An investor needs to close on a fixer-upper quickly and will refinance into a longer-term rental loan or sell after renovations.
  • Timing moves: Sellers who want to control both closings (sell and buy) without interim housing needs.

Short case example: A client used a three-month bridge loan to buy a house in a competitive market. They had 40% equity in their existing home, which served as collateral. The loan covered the down payment and closing costs on the new home; once their old house sold six weeks later, they repaid the bridge loan and closed on a conventional mortgage with a lower rate.

Who qualifies and underwriting considerations

Lenders look for:

  • Sufficient equity in collateral property (higher equity = easier approval)
  • Credit history and income documentation (though some private lenders emphasize collateral over credit)
  • A clear exit strategy (sale contract, refinance plan, or conversion to permanent financing)
  • Debt-service ability in case the exit is delayed

Typical eligibility for owner-occupants differs from investor-focused bridge programs. Investor bridge loans usually allow higher LTVs but charge higher rates and fees.

Costs and typical terms (what to expect in 2025)

  • Interest rates: commonly higher than market conventional mortgage rates; ranges vary widely based on lender, borrower strength, and collateral. In seller-financed or private-lender markets, rates can be significantly higher.
  • Fees: origination and closing fees commonly 1–3% of the loan amount, plus appraisal and processing fees.
  • Loan amounts: widely variable — from tens of thousands to millions of dollars depending on the market and property value.
  • Repayment: interest-only monthly payments are common; principal repaid at exit.

Note: Rates and fees change with market conditions. Always get written estimates and compare total cost (APR) across lenders.

Tax implications to consider

Interest on bridge loans can be treated differently depending on how you use the funds:

  • Primary residence: Mortgage interest may be deductible subject to IRS rules and limits. See IRS guidance on mortgage interest deduction and consult a tax advisor (IRS, 2025) for your situation.
  • Investment property: Interest is generally deductible as investment or business interest. Work with a CPA to document use of funds and to follow passive activity rules.

Tax rules frequently change, so confirm current rules with the IRS (https://www.irs.gov) or a qualified tax professional before assuming deductibility.

Repayment strategies and exit planning (critical)

A bridge loan is only as safe as your exit plan. Common exit strategies include:

  • Selling the existing home (proceeds repay the bridge loan)
  • Refinancing the bridge into a conventional mortgage when rates allow
  • Using cash reserves or a HELOC to repay if a sale is delayed
  • Converting to a long-term loan with the same lender (bridge-to-permanent)

Best practice: model a conservative sale timeline and a downside case where the sale takes 25–50% longer than expected. Confirm extension terms and penalties with the lender before closing.

Alternatives to bridge loans

  • Contingent sale offer: Offer contingent on selling your current home — lower cost but weaker in competitive markets.
  • Home equity line of credit (HELOC) or home equity loan: Lower rates for borrowers with sufficient equity, but may take longer to set up.
  • Personal lines or loans: Faster than some mortgages but typically have shorter terms and higher rates.
  • Cash-out refinance: Use if current mortgage rates and terms permit.

Comparing alternatives: run total-cost comparisons (including carrying costs if your old home remains unsold) before choosing a bridge loan.

Risks and common pitfalls

  • Timeline risk: If your existing home doesn’t sell, you may face extensions, higher costs, or forced refinance at unfavorable rates.
  • Double carrying costs: Having two mortgage payments increases financial strain if the sale is delayed.
  • Cost misestimation: Failing to model origination fees, appraisal costs, prepayment penalties, and higher interest can understate real expense.
  • Lender terms: Watch for balloon payments, steep late fees, and short cure periods.

Red flags when evaluating a lender:

  • Vague or missing written exit terms
  • Unclear or excessive prepayment penalties
  • Pressure to sign quickly without full disclosure

Practical checklist before choosing a bridge loan

  • Verify the lender’s reputation and read recent reviews.
  • Get a written breakdown of interest, fees, and total estimated cost.
  • Confirm collateral and LTV limits in writing.
  • Ensure the lender documents extensions, penalties, and conditions for conversion to a permanent loan.
  • Run conservative cash-flow scenarios (30–60–90+ day delays).
  • Consult your tax advisor about interest deductibility and reporting.

Where to find reliable information

  • Consumer Financial Protection Bureau (CFPB) — consumer guidance on mortgage products and risks (https://www.consumerfinance.gov).
  • IRS — for tax guidance on mortgage and investment interest (https://www.irs.gov).
  • Use vetted industry resources (investment and mortgage trade publications) and ask for lender references.

Related FinHelp resources

Frequently asked questions

Q: How long can a bridge loan last?
A: Typically 30 days to 12–18 months, depending on the lender and product.

Q: Will a bridge loan hurt my credit?
A: The loan itself will show on your credit report; timely payments help your score while missed payments or foreclosures will harm it.

Q: Can I refinance a bridge loan into a conventional mortgage?
A: Yes — that’s a common exit. Confirm refinance requirements (timing, appraisal, credit) before you borrow.

Professional disclaimer

This article is educational and reflects general industry practices and my professional experience advising buyers and investors. It does not constitute personalized financial, tax, or legal advice. Consult a licensed mortgage professional, CPA, or attorney to evaluate options for your specific circumstances.

Authoritative sources

  • Consumer Financial Protection Bureau (CFPB), consumerfinance.gov.
  • Internal Revenue Service (IRS), irs.gov.