Bridge Loans: Everything You Need to Know About Bridge Loans: Short-Term Solutions for Seamless Real Estate Moves

For homeowners and investors who need temporary financing to transition between properties, Bridge Loans offer a practical solution. Designed to "bridge the gap" between the sale of one property and the purchase of another, these short-term loans provide flexibility and speed when timing is critical.

Here’s everything you need to know about Bridge Loans.

What is a Bridge Loan?

A Bridge Loan is a short-term loan that allows borrowers to access equity from their current property to purchase a new home or investment property before their existing home sells. Bridge loans help eliminate the stress of timing two transactions perfectly by providing funds for a down payment or full purchase while the original property remains on the market.

Bridge Loans are typically:

• Short-term (6 to 12 months, with extensions in some cases)

• Interest-only or interest plus principal

• Designed to be repaid upon the sale of the current home or through long-term refinancing

• Available for both residential and commercial real estate needs

• May cover closing costs, moving expenses, or renovation costs in certain cases

Who Should Consider a Bridge Loan?

Bridge Loans are ideal for:

• Homeowners who need to purchase a new primary residence before selling their current home.

• Investors purchasing a property that requires quick closing.

• Homeowners in competitive markets who can't risk contingent offers.

• Buyers who want to avoid temporary housing between transactions.

• Individuals seeking to downsize, upsize, or relocate without timing delays.

• Property owners purchasing homes at auction or distressed properties where cash offers are required quickly.

• Business owners securing commercial real estate while awaiting long-term financing.

• Empty nesters moving to smaller homes without waiting for sale proceeds.

• Luxury homebuyers where time-sensitive, high-value deals are at stake.

Key Benefits of Bridge Loans

• Fast Access to Funds: Speed is one of the primary advantages.

• Non-Contingent Offers: Make stronger offers without waiting for a home sale.

• Flexible Repayment: Typically paid off once the original home sells.

• Avoid Temporary Moves: Move directly into a new home without interim housing.

• Equity Utilization: Allows borrowers to leverage existing home equity efficiently.

• Competitive Edge in Hot Markets: Allows buyers to act quickly without waiting for traditional financing.

• Preserve Investment Opportunities: Ideal for time-sensitive acquisitions.

• Maintain Family Stability: Avoid disrupting children's schooling or work by timing the move more smoothly.

Bridge Loan Requirements

• Credit Score: Typically 660+ (varies by lender).

• Equity: Usually requires at least 20%-30% equity in the current property.

• Debt-to-Income Ratio: Must demonstrate the ability to handle both payments temporarily.

• Repayment Plan: Clear path for repayment through home sale, refinance, or other funds.

• Property Types: Primary residences, second homes, vacation homes, and investment properties.

• Income Verification: Standard documentation or alternative income accepted depending on lender.

• Lender Relationship: Some private banks offer preferential bridge loan terms to long-term clients.

How Does a Bridge Loan Work?

1. Equity Evaluation: The lender assesses equity in the current property.

2. Loan Approval: Short-term financing is provided, secured by the existing property.

3. Purchase New Property: Borrower uses funds for down payment or full purchase.

4. Sale of Current Property: Proceeds from the sale pay off the bridge loan.

5. Permanent Financing (Optional): Borrowers may refinance into a traditional mortgage.

   
   

Types of Bridge Loans

• Closed Bridge Loan: There is a confirmed sale date for the existing property.

• Open Bridge Loan: No confirmed sale date, offering more flexibility but carrying more risk.

• First-Lien Bridge Loan: The bridge loan replaces the existing mortgage.

• Second-Lien Bridge Loan: The bridge loan sits behind an existing mortgage.

• Construction Bridge Loan: Allows financing for purchase plus renovation or rebuild prior to selling existing home.

Bridge Loan Considerations

• Higher Interest Rates: Rates are typically higher than traditional mortgages.

• Origination Fees: May include upfront costs, closing fees, and points.

• Risk of Unsold Property: Borrowers may face dual housing costs if their original property doesn’t sell quickly.

• Short-Term Obligation: Designed as temporary solutions, not long-term financing.

• Exit Strategy is Key: Lenders will require a clear plan for payoff.

• Liquidity Requirements: Some lenders require proof of additional reserves to cover dual payments if necessary.

• Market Volatility: If housing markets shift unexpectedly, the sale may take longer or achieve lower-than-expected value.

Pros and Cons of Bridge Loans

Pros:

• Enables immediate purchase without waiting to sell.

• Ideal for competitive markets where contingent offers are weak.

• Provides temporary liquidity.

• Can be tailored for residential or commercial real estate.

• Reduces stress from rushed or forced sales.

Cons:

• Higher costs compared to traditional loans.

• Short repayment periods.

• Market risk if current home takes longer to sell.

• Dual housing costs may temporarily strain finances.

• Not suitable for borrowers without sufficient equity.

Steps to Getting a Bridge Loan

1. Assess Current Home Equity: Work with a lender to determine available equity.

2. Get Pre-Approved: Understand your borrowing capacity.

3. Identify New Property: Select your next home or investment property.

4. Close on the Bridge Loan: Complete documentation, appraisal, and loan closing.

5. Sell Current Property: Use sale proceeds to repay the bridge loan.

6. Secure Permanent Financing: If needed, refinance remaining balance.

7. Monitor Market Conditions: Adjust your strategy if necessary to ensure timely sale.

   
   

Quick Bridge Loan Snapshot:

Final Thoughts

Bridge Loans offer a valuable tool for homeowners and investors who need short-term financing to facilitate seamless real estate transitions. With the ability to access equity, avoid contingencies, and secure new homes quickly, bridge loans provide peace of mind when timing matters most.

Whether you're navigating a hot real estate market, downsizing, upsizing, or making a strategic investment, a Bridge Loan could help you move forward with confidence.

If you’re buying, relocating, or investing and think a Bridge Loan might be the right solution, I would be honored to guide you through your options.

Contact Kereen Henry Luxury Associate Broker | Keller Williams 404-210-1674 | www.kereenhenry.com