A bridge loan does exactly what the name says — it bridges a gap. The gap between where you are and where you need to be in your capital stack. Bridge loans are short-term, fast-closing, and flexible. They're also more expensive than permanent financing, which is why the exit strategy matters as much as the entry.
When to Use a Bridge Loan
Bridge loans make sense when you need to close before permanent financing is ready, when a property doesn't yet qualify for conventional lending (tenants out, renovation needed, occupancy below stabilized), when you're in a 1031 exchange and need to close on the replacement property before your exchange deadline, or when you're buying at auction where conventional lenders can't move fast enough.
Bridge Loan Terms
Typical bridge loans run 6–24 months, interest-only, at rates from 9–12% depending on leverage, credit, and asset type. Most lenders will extend for 3–6 months if the exit is on track. Origination fees are typically 1–2 points. The short term and higher rate are the cost of speed and flexibility.
Underwriting a Bridge Loan
Bridge lenders underwrite primarily on the collateral — the value of the real estate today and its value upon stabilization. The borrower's credit and liquidity matter but play a supporting role. Your exit strategy needs to be documented: either a sale contract, a term sheet from a perm lender, or a clear path to stabilized occupancy that qualifies for conventional refinancing.
Bridge Loan Exit Strategies
Sale: If you're flipping the property, the bridge funds the acquisition and you repay at closing. Refinance into DSCR: Stabilize the property, get leases in place, then refinance into a 30-year DSCR loan. The bridge buys you the time to do the work. Conventional refinance: Get the property to a point where Fannie/Freddie guidelines are met, then take out the bridge with a conventional mortgage.
